Choosing the right credit card to meet your needs is important. Get it wrong, and it could cost you more than you thought, or you could miss out on beneficial features.
Choosing the right credit card
To work out which is the right credit card for you, it’s important to think about how you’re going to use it.
| How you plan to use your card | Type of card to look for |
|---|---|
|
You want to use it for your day-to-day spending and will always pay the balance off in full. |
Focus your search on cards offering rewards such as cashback or air miles. |
|
You want to spend on your card but can’t always pay off the full balance every month. |
Look for a card charging 0% on purchases or, if none are available, focus on cards with a lower APR. |
|
You’re hoping to reduce the cost of your existing borrowing. |
Search for a 0% balance transfer card. Or, if you’re planning to spend on the card too, see if you can get a deal offering 0% on transfers and purchases. |
|
Pay off your overdraft. |
Search for a 0% money transfer card. These allow you to pay cash straight into your bank account and can help to pay off your overdraft. |
|
You want to use your card abroad. |
Look for a card specially aimed at travellers. Make sure you look at what exchange rate and what fees you will be charged for foreign transactions and cash withdrawals. |
|
You want to rebuild your credit score. |
Search for a credit builder card. |
Credit cards offering rewards
Some cards come with benefits or rewards including:
- air miles
- cashback
- free travel insurance
- a concierge service, like a personal assistant over the phone — anything from hotel bookings to ordering food for home delivery.
They usually come at a price, such as a higher interest rate or an annual or monthly fee.
Unless you’re sure you can repay the balance on your card in full each month and never go over your limit, it’s unlikely these will be suitable for you.
Make sure you check the terms and conditions of any rewards attached to the credit card. For example, limitations on using air miles, travel insurance not covering you in all situations and other benefits you might be able to get cheaper by shopping around.
Find out more in our guide Cashback credit cards
0% introductory offers
Card providers offer 0% interest on things you buy, balance transfers (unpaid credit you transfer from another card), or money transfers (transferring money to your current account) for a set period of time.
In some cases, the 0% offer might be on both purchases and balance transfers, but typically it’s just on balance transfers. The introductory period might also be different for purchases and balance transfers. Check carefully what’s being offered.
0% on purchases
A 0% purchase offer is a cheap way of borrowing when you need to buy something big.
But make sure you can pay it off in full before your introductory period ends, as otherwise, you’ll start paying interest at the usual APR rate.
You might not be able to transfer the balance to another card at that point, as the same offers might no longer be available, particularly if your credit rating has gone down in the meantime.
0% interest on transfers
If you’re making a balance or money transfer from a credit card to a 0% interest card, you will have to pay a fee, usually around 2-4%, so you need to take this into account.
You will also need to check when the 0% interest period ends and have a plan for paying off the balance at the end of this period.
If you don’t make at least the minimum payments on your card balance throughout, the 0% offer might be withdrawn, and this can also affect your credit rating.
Find out if you should in our guide Should you transfer your credit card balance?
Credit cards to use abroad
There are huge variations in the fees, charges and exchange rates offered by different credit cards when you use them abroad.
Find out more about credit cards to use abroad at MoneySavingExpert
Credit builder cards
One way of rebuilding your credit history is to use a credit builder card.
These tend to charge a higher interest rate and come with a lower credit limit. So, to get the full benefit of these cards, without paying a lot in interest, it’s important you can pay off the balance in full each month.
See recommendations for the best cards to rebuild your credit score at MoneySavingExpert
How to compare credit cards
If you don’t plan to pay your balance back in full every month, you’ll need to compare overall costs very carefully.
Look at the APR
Top tip
Borrowing on a credit card can give you a bit of extra cashflow flexibility – but make sure you choose the right card and pay it back in full each month if you can.
The annual percentage rate (APR) is a way of expressing the interest rate you will be charged, and includes any extra fees you will have to pay.
This is useful for comparing credit cards, but it’s not the only thing you should be considering.
Find out more about interest rates and APR in our guide Interest rates explained
Check the fees
The APR doesn’t include any charges for late payments, exceeding your credit limit or returned payments.
See how to minimise the fees you pay in our guide Manage your credit card and avoid fees and charges
Check what you’ll pay each month
The figures can be scary. Unless you’re on a 0% deal or have more expensive credit commitments elsewhere you are paying down with your credit card, you should always aim to pay off what you owe at the end of the month.
If you can’t, pay off as much as you can to keep the total cost down.
Check your eligibility first
Make use of credit card eligibility checkers before you go ahead and apply for a credit card. They give you a better idea of whether you’re likely to be accepted for certain cards or not, and don’t affect your credit score.
Ways to apply
There are various ways to apply for a credit card:
- By post – you fill in a paper form, which you can usually get at the bank offering the card.
- Online – you fill in a form on the web. You might be sent some paperwork to sign and send back in the post.
- Directly from a comparison site that shows you a number of deals and allows you to apply directly
- In-branch – someone in your bank can help you with the application. You’ll usually need to make an appointment.
By law, you must be given pre-contract credit information in a standard form, known as the SECCI (Standard European Consumer Credit Information), and a credit agreement to sign – either electronically or on paper.
You must also be given an adequate explanation of the key terms and risks, so you can understand what you’re taking on. If in doubt, ask questions.
If there are FAQs on the website, but these don’t cover the particular question you have, ask the lender directly.
The downside of applying for a credit card – it might affect your credit rating
If you’re shopping around and comparing various credit offers, make sure you don’t actually apply for credit until you’ve decided on the best deal.
Every time you make an application for a credit card, it’s noted on your credit file.
If you make too many or your applications are refused, it might suggest you’re in financial difficulty, which can damage your credit rating.
This might lead other lenders rejecting an application or increasing the interest rate at which they are prepared to lend.
If you want to know whether you’re eligible for a card, or the price you’re likely to be offered, ask the card provider if they can make a ‘quotation search’ or ‘soft search credit check’ also known as an ‘eligibility calculator’. This search doesn’t leave a mark on your credit file, rather than an application search, which does.
If they refuse, think carefully about whether you want to go ahead.
Also, if you’re offered a quote, check whether this is guaranteed.
Some quotes might just be indications of likely eligibility or price. Most lenders will reserve the right to change their mind if new information comes to light.
Improving your chances of getting a card
Take these steps to improve the chance of having your application accepted:
- Make sure you are on the electoral register at your current address.
- Cancel any cards you don’t use.
If the lender rejects you on the basis of a credit check, they must tell you and give you the contact details of the credit reference agency they used.
You can then apply to the credit reference agency for a copy of your credit file. It’s always a good idea to ask the lender why your credit application was declined.
If there’s something incorrect on your credit file, talk to the credit reference agency and, if necessary, contact the credit provider to get it put right.