How we picked the top credit cards for 2021
To make it easy for you, we rate our cards on a five-star scale. The team at MyWalletHero determines these ratings by comparing credit cards across many areas. Here are some of the most important things we’re looking at when choosing the best credit cards:
- Annual Fees – When there’s an annual fee that comes directly out of your pocket. If there are great features in exchange for that fee, great. Otherwise, our favourite annual fee is £0.
- Introductory 0% interest offers – These offers give you 0% interest on purchases or balance transfers (or both!). They could help you get out of debt faster or allow you to spread the cost of large purchases. Longer is better in general, but longer 0% offers often also come with extra fees.
- Interest rates – We look for Representative APRs that are as low as possible.
- Rewards and cashback – These allow you to rack up points or cashback for just swiping your credit card. On some of the best cards, these even combine with 0% offers.
- Sign-up bonuses – These give you an extra boost at the beginning!
- Tools and extra perks – These features include access to your credit rating, fee-free Travel Money, and no non-sterling transaction fees. They help you manage your finances better or save you money.
Why you can trust us
We love sniffing out the best credit card deals on the market and bringing them to our readers. For more than two decades, our parent company, The Motley Fool, has been helping people around the world improve their financial lives. And that’s exactly what MyWalletHero aims to further. Together with our colleagues in the US, we’ve collectively analysed hundreds of card offers on more than 6,000 data points, reading through the small print to find the very best credit cards the market has to offer.
Types of credit cards
Different credit cards come with different super powers, just like superheroes. One type can put cash in your pocket for doing nothing besides shopping as you normally do, while others can help you get out of debt or earn miles for travel.
Because there are so many different types, it’s important to understand these differences and then figure out which type is best for you.
Let’s take a look at those main types of credit cards:
- 0% balance transfer credit cards — The main selling point for both types of 0% card is the same. Namely, an extended period of time where you pay 0% interest on a carried credit-card balance. With a balance transfer card, you’re able to transfer debt from another credit card to the new one, and then benefit from an extended period of 0% interest on that balance. The best cards in this category can give you more than two years of 0%. The benefit can be great in terms of savings on interest.
- 0% purchase credit cards — Like balance transfer cards, 0% purchase cards provide a period of 0% interest on your balance. The difference is, instead of offering that 0% on an existing balance that you transfer, you get 0% on new debt that you accrue through purchases on the card. The 0% periods for these cards can reach two years or more as well.
- Cashback cards — With a cashback card you get exactly what the name implies: cash… back. Most of these cards are structured to give you a certain percentage of your spending back in cold, hard cash. Right now in the UK market, getting a 1% or higher cashback rate is good, and lower than 1% is very common, and although not great, can still add up. Cashback card offers sometimes get a boost from introductory offers that put near-immediate cash in your pocket. Be aware that some cards which call themselves “cashback” don’t truly give you cash, but rather vouchers that often have to be spent in certain stores. If you already shop at those stores that can be fine, but otherwise it puts a dent in the value of the card.
- Rewards cards — Rewards cards typically accrue rewards in terms of points or miles for every £1 you spend and can be redeemed for spending vouchers, flights, hotels, and more. Points-based rewards cards are often tied to specific retailers, making them a great choice for shoppers who frequent that retailer. Travel-focused rewards cards also often have other benefits (such as no foreign transaction fees when used abroad or access to no-fee Travel Money) that 0% APR cards and cashback cards are less likely to have. Frequent travellers, especially international travellers, would be wise to have a travel credit card, even if only for the benefit of avoiding foreign transaction fees.
- Travel cards — If you’re a frequent traveller, you may already know how costly non-sterling transaction fees can be. A non-sterling transaction fee (or foreign transaction fee) is a fee that gets tacked on to your purchase when you swipe your credit card abroad. These fees can often be as much as 3%. Travel cards do away with non-sterling transaction fees, so travellers can swipe without those extra costs.
- Credit-building cards — There are two primary circumstances that might have you looking at credit-building cards. You may be brand new to credit and not have a credit history. Or you may have hit a pothole on the great financial highway and are trying to rebuild your credit. In either case, issuers that offer credit-building cards are willing to offer cards to individuals that have low credit scores or very little credit history to speak of. That comes with a significant tradeoff, as these cards almost always have an APR that’s far higher than cards aimed at individuals with good credit. Credit-building cards also usually don’t come bundled with benefits like 0% intro APRs or rewards. However, that’s not always the case, and if you do your research, it’s possible to find credit-building cards that have nice benefits. The biggest benefit of all with these cards is right in the name: credit building. For those that use these cards responsibly, the result could be an increased credit score that can help them score a great 0% credit card or a fun rewards card. Student cards could be considered part of this category, since students typically have little to no credit history.
- Business cards — No surprise that these cards are aimed at business owners. Generally, they have higher credit limits to support usage in high-spending business contexts. For business owners that want to draw a clear line between their business and personal spending, these cards can be a good choice. They can likewise be helpful when you want to be able to give cards to multiple people within your company. Business credit cards can also be a way for businesses to start a financial relationship with a bank that may be able to help the business with other financing needs as the business grows.
The latest credit card trends
The Coronavirus pandemic has not worked out well for the credit card market.
Interest rates broadly have been pushed down thanks to a record low core rate at the Bank of England. However, that hasn’t done much to standard credit card interest. They’re a bit lower, yes, but nothing significant.
This is another good reminder that a credit card is simply not a good vehicle for borrowing — at the standard rates. Even at a time when Bank of England rates are at record lows, a consumer will still pay very high interest rates on balances carried on their credit card.
Where credit-card borrowing can sometimes make sense is with 0% introductory periods for purchases or balance transfers. The 0% periods currently available are still fairly long, but caution at banks over the Coronavirus has led these periods to decline a bit.
Here’s why a credit card can be so useful
If you’re new to credit cards, you may be wondering why they might be useful. To be sure, they make paying at the grocer easier. But there’s quite a few other reasons you might consider using a credit card.
- They can benefit your credit score — There are myriad ways your credit score can come into play. Obviously, when you want to apply for a credit card. But also when you’d like to borrow money for a new car, a house, or basically any other large purchase. It helps to have a rock-solid credit score so that when the time comes that you need to borrow, banks will see you as a worthy lender. When you use credit cards responsibly, that good behaviour gets reported to the credit rating agencies by the card issuer and can help increase your credit score. This can be the case whether you already have a good credit score and would like to make it a great credit score, or if you have a poor credit score or little credit history, and would like to build to a better score.
- You can sometimes borrow money on the cheap — Be careful with this one. Normally, credit cards aren’t a great way to borrow money. The standard APR on most cards is high enough that you’ll be better off borrowing money other ways. But 0% purchases or 0% balance transfer credit card offer very low-cost ways to borrow. You just have to be very sure to pay off the cards before your 0% period runs out.
- Protection against fraud — Wouldn’t it be nice if we lived in a world where we didn’t have to worry about this? Maybe one day. Until then, using a credit card can protect you against the shady characters out there that have bad intentions for your money. In most cases of fraud, credit-card companies have your back and you won’t be on the hook for charges that fraudsters rack up. The same can’t always be said if someone gets hold of your debit card or bank account information.
- You can get rewarded — Rewarded for what? Rewarded for doing the spending that you would do anyway! Look, credit cards need to be used responsibly, so this isn’t an excuse to get crazy with your spending. But many cards offer rewards in the form of points or cashback that give a percentage of your spending back to you. And it’s hard to argue with getting handed cash or rewards.
- And then… the “little things” — Many cards offer perks including no-fee Travel Money, purchase protection (in case a new toy gets stolen or damaged), and travel accident insurance. These may seem like “little things”, but for savvy spenders that take full advantage of them, it could mean hundreds of pounds of savings. Try getting a wad of cash to do that for you!
Comparing credit cards
Are you ready to hear the secret formula for finding the perfect credit card?
We’re kidding, of course. There’s no secret formula, and, to be frank, there’s not even one ‘best’ credit card. The reason is that everyone has their own particular financial circumstances. So what may be a great card for you, may be terrible for someone else.
Figuring out ‘best’ for yourself goes back to what we talked about earlier — understanding the different types of cards, and deciding which type of card (which primary feature) best fits your circumstances.
Here are a few examples of how you can find the card that’ll be the best fit for you:
- If you have great credit and want to take advantage of the benefits of credit cards, then… Consider rewards or cashback cards. You generally need a good credit score to qualify for worthwhile rewards and cashback cards, and if you clear that hurdle, you can start banking points, miles or cash, often for doing the spending you’d be doing anyway.
- If you have good credit and are paying high interest on a credit-card balance, then… A balance transfer card might be right up your alley. For qualified applicants, balance transfer cards can offer multiple years of no interest payments. An average APR these days is around 19%, so you can imagine the savings can be steep when swapping that out for 0%!
- If you’re about to make a big purchase, then… Take a look at 0% purchases cards. These cards typically offer a year or more of 0% interest on new purchases and can help spread the cost of a large purchase (or a series of purchases) over a longer period of time.
- If you just got through a tough financial patch, but are trying to get back on track, then… A credit-builder card may fit your needs. Issuers of credit-builder cards accept applicants with less-than-stellar credit (often, much less than stellar). In return, cardholders have the chance to showcase their financial responsibility and potentially see their credit score start to heal.
- If you’re a frequent traveller, then… Look at travel-oriented cards. Many credit cards on the market charge as much as 3% on non-sterling transactions. Ouch! Cards aimed at travellers don’t have this fee. You may also find special deals on Travel Money or rewards that are oriented towards travel — like travel reward points.
Again, ‘best’ lies in the context that it’s used. For someone ideally looking for a cashback credit card, even the ‘best’ balance transfer card is unlikely to be a good match. And as great as the ‘best’ traveller credit card might be, if someone has poor credit, getting approved would be unlikely.
Quick tips for comparing credit cards
We get it. There are a lot of credit cards out there, and trying to decide can be challenging. Here are a few things that you can consider when trying to choose between cards.
Should you pay an annual fee for a credit card?
All things held equal, the answer is incredibly simple: avoid an annual fee. An annual fee is money that comes out of your pocket, and whether the card is giving you points, rewards, or other benefits, paying an annual fee reduces your benefit.
But things aren’t always equal, and cards with an annual fee may give you more points or more cashback. By doing some easy maths, you can figure out whether a higher-earning card with an annual fee may be a better deal for you.
Imagine two credit cards. One has no annual fee and earns £0.005 cashback for every £1 spent. The second card earns 1p for every £1 spent but has a £30 annual fee. What we can do here is divide card two’s annual fee (£30) by the amount that its rewards rate exceeds card one’s rate (that is, £0.005). Which comes to £6,000. So if you spend more than £6,000 on your card annually, the higher earning rate for card two is the better deal, even though you’d pay an annual fee. If you spend less than that, you’re better off not paying the annual fee and going with the lower rewards rate.
If your plan is to spend heavily on a particular card and really rack up points or cashback, then an annual fee may well be worth it. If you ask us though, rarely does it make sense to carry two cards that sport an annual fee.
0% cards: balance transfer or 0% purchases?
With a balance transfer card, the 0% interest only applies to balances from other credit cards that you transfer to your new card.
For example, if you have a £2,000 balance on your current credit card and transfer that to a new balance transfer card, then the 0% balance transfer offer will apply to that balance. But, unless the card also has a 0% purchases offer, the 0% interest will not apply to new spending on that card.
That makes deciding between 0% balance transfer and 0% purchases relatively easy. If you have an existing balance on a card that you’re paying high interest on, you’re probably better off with a balance transfer card. If you’re more concerned with paying 0% interest for a period of time on new spend, then think 0% purchases.
There are cards that have both a 0% balance transfer and 0% purchases offer. These can be a good option if you have an existing credit card balance and you’d like a period of time with 0% interest on new spend. But these cards are usually easiest to manage when the introductory 0% periods are equal for the balance transfer and purchases offers.
Better bet: cashback or points?
The nice thing about cash is that it’s… well, cash. You can turn around and spend it on whatever you like. So if you’re looking for a safe choice between cashback and points, cashback will always be more flexible.
But if you’re a frequent shopper at a particular retailer or retail group (like Tesco or Sainsbury’s), then earning and using points wisely could yield you even more than you could get with a cashback card. We just talked about annual fees above, but that’s worth noting here too. When comparing cashback or points cards, be sure to deduct that annual fee from any rewards you’re expecting.
Cards for poor credit and credit-building cards
Let’s be honest here, when you’re in the process of building or rebuilding your credit rating there’s a better chance that you’re a bit skint. For that reason, we prefer credit-building cards that don’t carry extra fees. If you’re in a tough money spot, it’s better to avoid stacking extra fees on top of it all!
Expect that most credit cards available to those with poor or no credit will have much higher representative APRs than those for people with good or excellent credit. Even so, looking for the lowest APR that you can find is a good idea. Better still is to look for a card that offers a 0% introductory period for purchases or balance transfers. These aren’t common, but they are out there.
Cards for those with bad credit are also likely to have a lower credit limit. That may seem inconvenient, but a high credit limit could encourage excessive spending, which is exactly what you want to avoid when rebuilding your credit rating.
Bottom line: should you be using a credit card?
Though around 60% of adults in the UK have a credit card, they aren’t for everyone. As we’ve discussed here, there are some great benefits for using a credit card. It’s an easy way to pay for things. And you can rack up points or even get straight-up cash just for making purchases. But, if used irresponsibly, credit cards are also an easy way to get stuck under a big pile of debt.
Below is a checklist of sorts. Before taking out a credit card, you may want to tick down this list and make sure you can answer “yes” to all of these.
- Can you use a credit card responsibly? — This isn’t a trick question! For some people, the urge to spend can be overwhelming. Combine that with easy access to borrowed money and high interest rates, and you could very quickly end up with crushing debt. If you’re thinking about taking out a credit card, be sure you can trust yourself to stay within reasonable spending limits.
- Do you keep up on your bills? — Most credit-card companies don’t take kindly to being paid late. To be sure, there are grace periods for cardholders that pay on time most of the time. But if you have a habit of missing due dates on bills, then having a credit card could mean aggravating fees and extra interest. If you’re in a tough financial position, that can make it even though. But even if you’re in a good financial position, why put yourself in line to pay extra fees? Of course, if you’re typically on the ball and on time paying your bills, paying your credit card on time shouldn’t be any extra hassle.
- Can you rely on your income source? — One of the reasons that a lot of people end up falling into debt is that they experience big swings in their income. During a lull in money coming in, they end up putting too much onto their credit card. Combine that with the interest that starts piling up, and it can be hard to claw your way back. Having predictable sources of income makes it much easier to consistently pay off your credit card and stay out of trouble.
- Are you free of big purchases on the horizon? — While credit cards can be great for building your credit so that you can get approved for loans in the future, that doesn’t hold up if the loans you’re looking for are in the very near future. Applying for credit cards has the potential to ding your credit score, at least temporarily, so if you’re hoping to borrow to buy a car or finance a house in the near future, you may want to hold off on new cards.
