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Credit card basics

What is a credit card?

Credit cards are issued by credit lenders like banks or building societies and let you buy goods and services on credit. When you pay for items with a credit card, the card issuer is essentially lending you the money and agreeing to pay for those goods on your behalf. This amount becomes the balance of your credit card. 

How do you get a credit card?

You’ll need to be at least 18 years old and have a good credit score – this essentially tells lenders how good you are at paying back what you owe. You should only apply for cards when you know what your score is and what you might qualify for. If your score isn’t great, you might be better served by a credit-builder card which slowly builds up your credit rating. 

What will my credit limit be?

Credit limits are at the discretion of your card issuer and will vary. Your credit score can also influence the limit set. Credit limits can also be increased and decreased after a period of time depending on how you use it and how reliable you are at paying back the balance.

About our credit card comparison

With so much choice when it comes to credit cards, it can be hard to narrow it down to just one. The team at MyWalletHero have made it easy for you by rating our cards on a five-star scale. We compare cards across many different areas and focus on the key things that make a difference when choosing the right credit card:

• Introductory interest-free periods – These are offers that give you 0% interest on purchases or balance transfers (or both!). They help to give you breathing room to pay off your debts faster or spread the cost of large purchases. In general, the longer the interest-free period the better, but expect longer 0% balance transfer periods to come with a balance transfer fee.
• Annual fees – We look to see if you will be charged an annual fee on a credit card. While most of the time you want to avoid your card costing you money, there are times when an annual fee means you can unlock great features.
• Interest rates – Knowing how much interest you will pay on your credit card is key. So we look for Representative APRs as low as possible.
• Rewards and cashback – Credit cards like these allow you to earn rewards or cashback just by using your card. On some of the best credit cards around, these even combine with 0% offers.
• Sign-up bonuses – These give you an extra boost at the beginning. Be it extra reward points or a one-off cashback offer, they are a little something to help sweeten the deal.
• Tools and extra perks – This could be anything from access to your credit score to fee-free cash withdrawals. They are the things that help you manage your finances better or save you money.

Check out our new credit card repayment calculator

Types of credit cards

Different credit cards come with different super powers, just like superheroes. 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 — 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 top 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 — Most of these cards are structured to give you a certain percentage of your spending back in cold, hard cash and getting a 1% or higher cashback rate is good. While lower than 1% is very common, and although not great, it 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. 
• 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.
• 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. Credit-building cards also usually don’t come bundled with benefits like 0% intro APRs or rewards. 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. 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.

Tips for finding the right credit card

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: avoid an annual fee.This 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. 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.

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.

Check out our new balance transfer calculator

Better bet: cashback or points?

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

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. 

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.

Cards for those with bad credit are also likely to have a lower credit limit. 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.

Using the list below as a guide will help you keep debt in check.

• Use your credit card responsibly. — For some people, the urge to spend can be overwhelming. If you’re thinking about taking out a credit card, be sure you can trust yourself to stay within reasonable spending limits.
• Stay current 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.
• Make sure your income is reliable. — One of the reasons that a lot of people end up falling into debt is that they experience big swings in their income. Having predictable sources of income makes it much easier to consistently pay off your credit card and stay out of trouble.
• Clear your calendar of big purchases. — 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.

Why you can trust us

We love sniffing out the top 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 top credit cards the market has to offer.

Frequently Asked Questions

Learn more about credit cards and your credit score

• Even if you think you’d rarely use it, it still could be a good idea to get a credit card
• The downside of credit card usage can be seen in the average credit card debt in the UK
• There are obvious things that can hurt your credit score, like not paying your bills on time but there are surprising things that can hurt your credit score
• If you have a credit card and want to protect your credit score, you’ll definitely want to avoid these five common credit card mistakes
• Credit card interest rates are high. But why are they so high?
• If one credit card can be good, could two credit cards be better? In some cases, yes

More ways to compare credit cards

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