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One one level, credit cards are pretty straightforward. You put a purchase on your card and then you pay it back. On another level, credit cards are rather more complex. In fact, it’s rather an open question how many adults really understand how they work and it’s arguably completely understandable that younger people don’t really grasp what they mean in actual practical terms. With that in mind, here are four basic facts you need to know about them.

On a day-to-day basis, credit cards are only free to use if you pay off the balance in full each month.

Outside of special-offer periods, you can use credit cards for free, but only if you pay off the balance in full each month.

Special offers are usually time-limited and have their own terms and conditions

Many companies use introductory special offers to entice new customers and credit-card providers are often no exception. There are, however, two key points which tend to apply to most of these offers. The first is that they tend to be time-limited, essentially they are sweeteners rather than standard deals. The second is that while the headline offer may look attractive, indeed it may be attractive, it’s odds on that there are terms and conditions attached and, if you break them, you will lose the offer. When it comes to credit cards, the terms and conditions generally simply oblige you to make the minimum payment on time, but you would need to check the terms of any particular offer to be sure.

Even during a special-offer period, you usually have to make some form of payment

If you use a credit card at all during a special-offer period, you generally have to pay off the minimum balance each month. In other words, there’s a difference between zero interest and zero payment.

There’s a difference between chargeback schemes and Section 75 of the Consumer Credit Act

Understand this and you may well find yourself ahead of most people, even those who consider themselves financially-savvy.

Chargeback schemes are run by the central card schemes themselves, companies like Visa and Mastercard. They cover both debit and credit cards and all levels of purchase from the smallest to the largest. Although the rules by which these schemes operate do not, in and of themselves, carry the weight of laws, the companies involved agree to abide by them as part of their contract and these schemes can, therefore, be taken seriously.

Section 75 of the Consumer Credit Act is (part of) a law and Section-75 protection, as it is often called, refers to the fact that this Act makes lenders jointly liable with retailers when customers borrow to make purchases costing between £100 and £30,000. This is distinct from the chargeback schemes and may apply when they do not, for example, if you are time-expired from making a chargeback, you may still be able to claim under Section 75.

There are, however, a couple of caveats to this. The first is that you have to borrow money for the protection to apply, so, for example, if you have a positive balance on your credit card and use this to make the purchase, Section 75 does not apply. Secondly, Section 75 only applies where there is a direct relationship between the lender, the customer and the retailer. It may or may not apply if the retailer uses a third-party processor to make payments. The rules to determine this are complex; however, one key point to note is that, as a rule of thumb, if you use a credit card to fund a PayPal purchase, you will probably forfeit your Section 75 rights.

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