Getting a new credit card is an exciting and liberating milestone. But if you don’t know how to choose a credit card, the whole process can seem overwhelming. Don’t worry, though, we’ve got you covered. Here’s how to choose the right credit card.
How credit cards work
Think of a credit card as a type of loan.
You get a plastic card (or, if it’s an Apple credit card, a titanium card) and there’s a cap on how much you can spend. Then, every month, you need to pay back a certain amount of money.
Should you get a credit card? Ultimately, only you can decide if a credit card is right for you. But how do you choose a credit card? Well, before we look at that, let’s go over the types of credit card available.
The various types of credit card
With so many card options out there, the choice really comes down to why you need the card in the first place. Here are the seven most common card types you’ll come across:
1. 0% credit cards
With 0% credit cards, you don’t pay any interest for a set period (e.g. 20 months). So these cards are great for one-off large purchases that you plan on paying off within the 0% interest period.
The most important consideration is, obviously, how long the 0% period lasts. The Santander All in One Card, for example, offers a 26-month interest-free period for purchases, which is ideal if you’re buying multiple white goods or trying to furnish a new property.
2. Balance transfer cards
Balance transfer cards are a good option for people with existing credit card debt. All you do is move your current balance onto a new card with a 0% interest period. In other words, you can work on reducing your credit card debt without accruing new interest.
Just ensure you check how long the 0% interest period lasts, or else you could end up paying interest again. The Tesco Balance Transfer Card, for example, has a 22-month interest-free period, which is decent.
If your finances have been affected by coronavirus and you’re trying to avoid extra charges, these cards could help you.
3. Credit-builder cards
Never had credit before? Or does your score need work? That’s where credit-builder cards come in. They’re designed to help you actually build a solid credit history.
The main downside is that interest rates can be high, so it’s best to pay off the balance every month. But some cards, like the Aqua Advance, offer yearly APR reductions as you prove your ability to manage your balance.
4. Travel cards
We might not be travelling so much during the pandemic, but that doesn’t mean travel cards should be ruled out.
The major benefit is that you don’t pay foreign transaction fees if you use them abroad. But some cards, like the Santander Zero Card, offer extra benefits, like 0% interest for 12 months.
5. Rewards cards
Want to earn points or Avios every time you use your credit card? Then you might consider reward cards. These cards are exactly as they sound – credit cards that reward you for using them. For example, if you collect Nectar points, you might look at a card like the American Express Nectar Card.
All that said, they’re best for people who pay their balance off in full every month. Why? Because otherwise, you’ll probably pay out more on interest than you earn in rewards!
6. Cashback cards
Cashback credit cards are more specific types of reward cards. Rather than getting points for spending, you get cash instead. If you’re looking for a straightforward option with no annual fee, maybe consider the Barclaycard Rewards Card.
7. Business cards
Business owners can benefit from taking out business credit cards. If cash flow is a little tight or you need to make a large purchase, a business card like the Metro Bank Business Credit Card might help.
How to choose a credit card
Now you know the types of credit card out there, it’s time to summarize how to choose a credit card for you:
- Establish why you need the card. Are you building credit, or do you need to make a large purchase?
- Check the APR. Can you afford the interest payments if you’re not able to clear your balance monthly?
- Plan on paying the balance in full each month? Maybe take advantage of rewards or cashback cards.
- If you choose a reward-style card, think about what rewards will benefit you the most.
- Check you meet the eligibility criteria for your chosen card before applying.
Now you know how to choose a credit card, it’s time to start shopping around. Check out our credit card comparison page for help finding a card to get you through the COVID-19 pandemic and beyond.
To improve your chances of a successful application, remember to reduce your existing debt, and get on the electoral register so lenders can verify your identity.
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