HSBC Living Finance

Using credit means borrowing money from a lender and agreeing to repay it on a specific date or over a period of time. The most common ways of using credit are through loans and credit cards.

It is important to use credit wisely as there are always costs associated with it.

How do loans work?

When you take a loan, you borrow an amount of money (called the loan principal) from the lender. You agree to repay this money together with a fee, which is known as interest, at a specific date or over a period of time. The interest is usually a percentage of the sum of money borrowed. The more you borrow and the longer the interest period the more interest you need to pay.

How do credit cards work?

When using a credit card to make purchases, you are borrowing money from the card issuer – usually a Bank or financial institution. You can use the card for purchases up to an agreed sum of money. This agreed sum is called your credit limit. After repaying the money you've spent on your credit card you can keep borrowing up to your credit limit.

However, if you do not use your credit card wisely you could be tempted to overspend. This is dangerous because it means you could be faced with credit card charges like these:

• Finance charge If you fail to settle the due amount by the set date, a finance charge is applied to each card transaction in your credit card statement and each new card transaction until the total amount is fully paid.
• Late charge If you don't make the minimum payment due by the set payment date a late charge is added.
• Over-limit handling fee You will be faced with this charge if you exceed your credit limit.

Before purchase Ask yourself if you really need to make this purchase and take into account your budget and financial strength Shop around for the best bargain Some merchants impose a handling fee when you use credit cards instead of cash so consider the total cost including such fees Make best use of credit card offers such as discounts on purchases		After purchase Keep receipt copies Check your monthly credit card bill for any errors such as an unauthorised charge, incorrect payment, or computer mistake, and if you find any notify your card issuer at once Beware of penalties due to missed payments and settle them right away