Finding the best credit card for you

There’s a lot to think about when choosing the right credit card for you. With our guide, you’ll learn how to better understand credit cards and what to look for when searching for the best deal.

What is a credit card?

A credit card can be used to pay for your purchases online and in stores. It’s a form of short term borrowing, allowing you to buy things now and pay for them later. Depending on the type of credit card you use, you may have to pay interest in addition to the original cost of your purchase, as well as any pre-arranged fees.

How do credit cards work?

Firstly you’ll need to fill in a credit card application. If accepted, you’ll be given a credit limit, which is the maximum amount of money you can borrow on the card. Your limit will depend on your credit score, which the card provider will check before approving you.

You’ll be told in advance your credit card interest rate and any annual fees you’ll need to pay, which may vary depending on the deal you choose.

When you make a purchase, your credit card provider will keep a record of it, and you’ll get a statement each month with every purchase you’ve made. If you don’t pay back everything you owe on time each month, you’ll be charged interest on top of your unpaid balance unless you’ve been accepted for a card offering an interest-free period.

What is the difference between a credit card and a debit card?

Your debit card is linked to your bank account, allowing you to withdraw cash from the balance you have in it or pay for things directly from your balance online or in-store. Some people have an overdraft agreement with their bank, which means you can use your debit card to pay for things from your overdraft balance. An overdraft is an expensive form of credit and should only be used for short term use.

A credit card gives you access to a credit limit, which means you can buy items and pay for them later – when you pay for things with a credit card, the money isn’t taken directly from your bank account. Instead, your credit card company will pay for the item, lending you the money until you’re ready to pay it back. Debit cards won’t charge you interest or fees for using them (unless you use the overdraft facility), but credit card providers will.

What are the different types of credit cards?

There are several different types of credit cards, and choosing the right one will depend on your circumstances and what you want to use it for. Use a comparison site to make a credit card list comparison before deciding on the right card for you.

Purchase cards

Purchase cards are often offered with an interest-free period, which means you’re borrowing for free as long as you pay the balance back in full before the end of the interest-free period. You’ll need to make sure you always pay off the minimum payments each month to keep your 0% rate, and you’ll likely need a good credit score to be offered this type of card.

Balance transfer cards

If you’ve got an existing credit card and you’re paying interest on the money you owe on it, you can apply for a balance transfer card to reduce the amount of interest you’re paying.

Once you’ve got your new balance transfer card, you can move your existing debt over for a fee. Typically these cards offer a 0% or low-interest rate for a period of time, for example, six months.

Balance transfer and purchase cards

These cards give you the benefits of a purchase card and a balance transfer card simultaneously. Getting one of these cards helps you spread the cost of large purchases and reduce the interest you’re paying on a pre-existing card. You may find these types of cards charge an annual fee.

Reward cards

Every time you use a reward card, you’ll get benefits like travel miles, cash back or discounts in shops. Cards like this usually come with an annual fee and some charge higher interest rates. You may find you need a good credit score to be accepted for this type of card.

These are the best credit cards if you’re disciplined enough to always pay off your balance at the end of every month or you travel or shop frequently. It’s important to work out if the rewards are worth it when you consider the annual fees.

Travel credit cards

If you’re heading abroad and planning on booking hotels or withdrawing cash while you’re overseas, a travel credit card could save you money because they can help to reduce the costs of using your usual credit card in another country.

Credit builder cards

These types of products are the best credit cards for beginners. If you haven’t taken out credit before or have a low credit score, a credit builder card could help build your credit rating.

Typically these cards will have a low credit limit and high-interest rates. So long as you pay your monthly bill on time and in full to demonstrate you’re reliable, you should find your credit rating improves, giving you access to better deals in the future. If you’re new to the world of credit, these products are sometimes described as the best starter credit cards.

Money transfer credit cards

A money transfer card allows you to borrow cash. By transferring money from the card into your current account, you can then use the balance in your account to withdraw cash from an ATM. Some people use these cards to pay back overdrafts that cost lots of money in interest rates and fees. Typically money transfer cards offer a 0% rate period, although you’ll need a good score to be approved, and you’ll need to pay a fee every time you make a money transfer.

How much can you borrow with a credit card?

How much you can borrow on a credit card will entirely depend on the credit limit the provider gives you. A credit limit is a maximum amount you can spend on your credit card. Providers decide how much your limit is by looking at your credit score, payment history, income and outgoings. You won’t find out exactly how much you’ll be able to borrow until after you’ve hit the credit card apply button. However, you can usually see what cards you’re pre-approved for using a credit card eligibility checker.

Can I get a credit card with bad credit?

If you have a bad credit history, there are cards designed specifically to help you improve your credit score. Credit cards for bad credit work in the same way as standard credit cards, except you’re likely to start with a small credit limit, and you may pay higher rates of interest to begin with.

What is the cost of a credit card?

The answer to this question isn’t straightforward because it depends on the type of credit card you apply for, how much your credit card provider charges in interest and whether or not you repay your entire balance every month or not.

Some cards may charge you an annual fee simply for having the card, even if you don’t spend on it.

You’ll pay interest on purchases if you don’t pay off the balance you owe on the card by your due date.

You may also get charged fees – for example, you should always avoid withdrawing cash on your credit card. Otherwise, you’ll pay a fee to your credit card provider for doing so.

Unless you use a specially designed travel credit card, you’ll also be charged fees every time you use your card abroad for both withdrawing currency from an ATM and for spending in shops and restaurants.

If you make a balance transfer, you’ll almost always pay a fee for doing so.

Lastly, you’ll also be charged fees if you default on repayments or are late paying your credit card bill.

How do I find the best credit card offers?

There are so many different credit cards available, so it’s important you shop around on credit card comparison sites to find the right ones for you before filling in an online credit card application.

What will you be using the card for? How you choose to use a credit card will help you find the best credit card deals.

Here’s a checklist of what to look at when you’re looking to apply for the top credit cards;

Annual Fees

Some credit card deals charge a fee every year you have the card. If you don’t want to pay these types of fees, search for credit cards with no annual fee and check the terms and conditions of a card before applying.

APR (Annual Percentage)

This is how much it will cost you to borrow on a credit card if you don’t pay the whole balance each month. The higher the APR, the more it will cost you.

The average credit card interest rate in the UK is approximately 21%.

Minimum payment

If you don’t clear the balance at the end of the month, you’ll be asked to pay what’s known as a minimum payment, which is approximately 3% of any balance due. The bigger your balance, the more your minimum payment will be.

Other charges

Most credit card deals include charges like going over your agreed credit limit, withdrawing cash or using your card abroad.

Introductory interest rates

Some credit card offers include a low-interest rate or 0% for a certain amount of time. For example, your interest rates may change after the first 12 months. When you compare cards, remember to look at how long the introductory rate lasts as well as the interest rate it switches to after the original introductory offer.

What do I need to take out a credit card?

If you’re new to the application process, here’s everything you need to know to apply for credit cards for beginners;

You’ll need to be 18 to apply for a credit card, live in the UK and be able to prove your earnings. You can do a few things to give yourself the best chance of being accepted for new credit cards.

  • Register to vote

Being on the electoral roll provides credit card companies proof of your address.

  • Opening a bank account

Having a current account can help you improve your chances of being accepted. Setting up direct debits and saving money demonstrates to providers that you’re responsible financially

  • Paying bills on time

If you pay your bills consistently on time for six months, credit card providers will believe you’re a lower risk to them.

The simplest way to apply for a credit card is online. Credit card issuers need your;

  • Name and address
  • Employment and income
  • Date of birth
  • Nationality

Are there any alternatives to credit cards?

What are the advantages and disadvantages of credit cards?

The advantages:

  1. Credit cards can help you to spread the cost of your purchases
  2. They can earn you cashback and rewards for simply spending money
  3. Using credit cards can be a cheap way of borrowing money if you can get an interest free credit card.
  4. Credit cards can help you to build your credit rating.
  5. Credit cards come with payment protection offered by Section 75 of the Consumer Credit Act. This means if you make a purchase that goes wrong and the retailer refuses to refund you, you’re able to request a refund from your credit card issuer instead. This can be helpful if you’ve paid for flights and your airline goes bust before you depart. Section 75 applies to credit card purchases between £100 and £30,000.

The disadvantages:

  • The fees you may have to pay include;
    • Annual fees
    • Balance transfer fees
    • Foreign transaction fees
    • Late payment fees
    • Charges for going over your credit limit
  • High rates of interest
    • Some credit cards charge high rates of interest. It’s always important to check what the credit card APR is before applying for a card, especially if you know you’re unlikely to be able to pay off your balance in full every month.
  • You could find yourself overspending.
    • Because the purchases you put on your credit card aren’t automatically deducted from your bank account, it’s easy to spend more money than you have. If you can’t afford to pay your monthly bill, you’ll be charged fees and interest rates, and your debts could quickly become unaffordable for you.

Credit Cards FAQs

Can I withdraw a credit card application?

To cancel your credit card all you need to do is contact your provider. Most lenders will offer a 14-day cooling-off period from when you first receive your card, and you’ll have 30 days to pay off any outstanding balance. 

If you want to cancel your card after the 2-week cooling-off period, it’s likely you’ll need to make sure you’ve paid off any outstanding balances.

Can I pay off credit card debt early?

Yes. Unlike most other forms of credit, most credit cards will allow you to make payments at any time, as long as you meet your minimum payment requirements.

What happens if I miss a repayment on my credit card?

If you miss a minimum payment on your credit card, it’s likely that you’ll be charged a late payment fee by your lender, and in many cases lose any introductory offers such as an interest-free period. 

Missing a repayment will also leave a mark on your credit report, which is likely to damage your credit score.

What does APR mean?

APR is short for Annual Percentage Rate – which means the amount in interest you’ll pay on top of the amount you’ve borrowed. Any extra fees or charges are added to the loan amount before APR is calculated.

It’s a legal requirement for credit lenders to show their APR so an easy and fair comparison of interest rates can be made between lenders.

 

More credit card options

We compare a range of credit cards to help you find the best cashback credit card, 0% interest credit card or credit building card for you.