Credit agreements

Most retailers offer credit 'deals', especially for large purchases like cars and furniture. These deals allow you to buy an item and make regular payments over a period of time. Some of these deals are interest-free (only charging interest if you don't pay it all off by the deadline), but most charge interest. This means, in the long run, you end up paying more than the item was actually worth. And the longer you take to pay it off, the more expensive the purchase becomes. Plus, if you run into trouble with making your payments, the retailer might be able to repossess the goods you've purchased.

Credit cards
You can get a credit card from a bank or building society (many large companies, charities and supermarkets now issue credit cards, too). Whenever you use your credit card, you are in effect taking out a loan from the credit card company. Once you've made a purchase, you'll have some time before your statement arrives, at which point, you'll be given a deadline to pay the outstanding sum. You can pay the full amount and, as a result, get free credit. Or, if you can't pay, you'll have to pay a minimum sum every month and the company will charge you interest. Again, this means you end up paying more than the item actually cost. And the higher the interest rate, the more you'll end up paying.

APR explained
Both credit cards and agreements advertise their APR. This is the Annual Percentage Rate of charge and is a standard measurement for showing how competitive a loan is. Usually, the lower the APR, the better the deal (i.e. the less interest you pay). If the charges included in the APR vary, your repayments can go up or down every month. Fixed-rate credit agreements have fixed-rate repayments (a set sum) and this might be better if you're on a tight budget.

How to get credit
Whether you get a credit card or a credit agreement with a retailer, you'll have to fill in one or two forms, giving information such as your name, address, age, date of birth, occupation and salary. You'll probably have to provide some identification, too.

The credit company will then check that you haven't got a record of debt or poor credit, before they can give the go ahead.