How to choose the right credit card

17th July 2018

By Kurt Wood

Whether you’re a first-time credit card user or you’re looking for the best deals to reduce your monthly payments, it’s important to browse before you buy. Shopping around and familiarising yourself with the current market is the best way of understanding what’s out there.

But how do you know when you’re choosing the right credit card for your needs? Here we give you the full lowdown on different types of credit cards and things you should think about before applying, with guidance on how to choose the right credit card for you and where to compare with ease. 

Different types of credit cards

There are a number of different credit cards out there, each with a different purpose. Be sure to figure out how you will be using your credit card before picking one. Here are some of the main credit card types to consider:

Standard credit cards

This is the most popular option for many people, particularly people who don’t use credit cards often. They’re simple to understand, with no complicated rates, zero frills and no reward system. This type of card is ideal for people who want easy access to emergency funds or anyone who wants to spread the cost of big purchases.

Balance transfer cards

A balance transfer card is designed for people who already have outstanding balances with other credit card providers. A balance transfer card allows you to transfer your debt over to a new card. The purpose of this is usually to take advantage of a special offer, such as an interest-free period. Interest-free balance transfer cards can be a great way to pay off debt quicker. They’re particularly useful if you have multiple cards and would like to simplify your finances. 

Reward credit cards

Reward schemes can be suitable for those who rely on their credit cards a lot but are also able to repay their balance in full each month. If you are a regular card user, it may be beneficial to get a card with reward points. These points can usually be redeemed as money off supermarkets or airlines. If you don’t want a reward card linked to a specific shop/brand/airline, it’s worth looking into a cashback card instead. Points earned from a cashback card are redeemed for cash.

Student credit cards

Designed for university students who have no credit history, this type of card can be the first stepping stone for future lending. Student credit cards are generally easy to get a hold of and those who apply will have an easier time getting approved. As long as you are enrolled at an accredited university, you should be able to apply for a student credit card with your bank.

Charge cards

This type of credit card has no spending limit and is not suitable for everyone. They are particularly bad for borrowing periods longer than a month. Unless you plan on paying your balance in full on a monthly basis, charge cards are not for you. They are good, however, for people who can afford to cover their purchases at a later date (such as payday). Plus, they can be very good for customers who are interested in rewards and cashback schemes. You usually need a very good credit score to be eligible for a charge card.

Secured credit cards

Secured cards are ideal for people with no credit history or poor credit history. They require a security deposit before you can get a credit limit (usually of the same value) and you will need to make monthly payments just like you would with an ordinary credit card. The main purpose of a secured card is to manage your spending whilst also building your credit rating. If you have a low or damaged credit score, this is a fast way of getting a boost.

Credit builder cards

If you have bad credit, it can be very difficult getting approved for a credit card. But credit builder cards can help you repair your credit profile and should be used to prove that you are no longer a high risk to lenders. Be aware that these cards often have very high interest rates. They are not suitable for people who struggle to make repayments and are designed to be used responsibly. Otherwise, they will end up costing you a lot of money.

Low-APR cards

A low-interest rate card is a fantastic alternative to 0% balance transfer offers. Be aware that once the zero-interest period ends you’ll be probably be paying over the odds, meaning you need to jump ship every time your zero-interest offer comes to an end. Low APR cards ensure a consistently competitive rate, so you can avoid the hassle of constantly shopping around.

Considerations before you apply for a credit card

Before you apply for a credit card, it’s important to understand how you’ll use it. Used well, a credit card can help you boost your credit profile (giving you a better chance of getting a mortgage or loan). Used irresponsibly, a credit card can quickly become a burden and spiral into mounting debt.

The main thing you must be aware of is your eligibility. Are you high-risk or low-risk to lenders? The only way to find out is to look into your credit score online. There are three credit reference agencies in the UK: Equifax, Experian and CallCredit. All three companies use a scoring system to determine whether you are a desirable customer for loan and credit card providers.

There are a number of websites through which you can get your credit score and full credit report, including our own free credit report service.

How to choose the right credit card

Still not sure which credit card to apply for? When it comes to choosing the right credit card, there are a lot of different factors to think about. Here are some of our tips to help you out:

Don’t be fooled by representative APR – you will see ‘representative APR’ and ‘typical APR’ being advertised, but these rates are not necessarily the rates you will be offered. A typical APR represents around 50% of the country.

Look at individual interest rates – calculating your exact APR can be complicated. This is because interest rates can vary based on types of card usage. There will be a different rate of interest applied to cash withdrawals and purchases, so it really does depend on how you plan to spend.

Check the offers carefully – it’s easy to get confused when there’s so much jargon being used. Before you apply for a card, be certain that you understand the offer. For instance, it can be an easy mistake to assume that 0% refers to both balance transfers and purchases (when, in many cases, it only refers to the transfer).

Be aware of the fees – the APR doesn’t include things such as late payment charges or returned payments. Always check the fine print to see what possible charges there may be. Also remember that for balance transfer cards, there is usually a one-off transfer fee (normally around 3%).

How to compare credit cards online

The easiest way to compare credit cards is by using a credit card comparison service. These give you the chance to compare deals and interest rates side by side.

If you want to apply for credit card deals with the best approval rate, it’s important to be prepared and do your research. The first thing you need to look at is your eligibility. Every time you apply for a loan or credit card, the lender will pay a small fee to access your credit information to see whether you are low-risk or high-risk. This helps them decide whether to lend to you.

Because every credit card enquiry you make will leave a footprint on your credit profile, it’s important to check your eligibility before you apply.

How to check your eligibility

Knowing what your credit score looks like before is a great way to get a better picture of your suitability for different cards. You can easily find your score from the three credit reference agencies (Equifax, Experian and CallCredit).

For the best chances of approval, we recommend using our credit card eligibility checker to find suitable offers. This free tool carries out a soft search on your file to show you how likely you are to be accepted for different cards.

An eligibility checker will not damage your credit score, so it’s a great idea to use one before applying for any credit cards online.

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