How to choose the right credit card
Which credit card is best for you and your finances?
Here’s the truth: although there are lots of different credit cards available, there aren’t all that many kinds of card.
In fact, there are only seven.
Seven different kinds. No matter what colour the credit company makes the card, no matter what introductory offer they have, no matter what they name it — every credit card sits comfortably in one of seven categories.
How each of the 7 credit cards work
This guide includes information on the workings of the seven kinds of card and their pros and cons. Armed with this knowledge, you can dismiss the products you definitely don’t need right now and narrow your options.
1. The one that helps fix your poor credit history
Having a weak credit history or County Court Judgment (CCJ) makes it harder to get a card. But products are available specifically for people wanting to rewrite their credit history.
Meet the card for those with Poor Credit
It all starts with demonstrating you can responsibly manage a small amount of credit. Generally, these cards have low credit limits, which should be easier to pay back in full and to deadline. Do this repeatedly and you’ll prove to lenders that you’re in control.
They’re a great way to quickly and effectively get your credit rating back on track, but should:
a) Only be taken out if this is your aim; and
b) You know you can pay the balance off in full every time.
When lending to someone with poor credit the stakes are a lot higher. For this reason, lenders place high interest rates on these cards to try and minimise risks to them.
2. When you need a card to spread your costs
Great for big and small purchases, and simple to use and manage.
Meet the Purchase card
A purchase card helps when you:
- Need to buy something but don’t have the money in your account immediately
- Want extra protection on a big purchase
- Are looking for an easy-to-manage first-time card.
Purchase cards give you 0% interest for a set number of months. During this time, you can buy things without triggering extra fees if the balance isn’t cleared in full, each month.
After the 0% interest-free offer expires, the rates on these cards tend to increase. Avoid these fees by getting into the habit of clearing the monthly balance whenever you have the cash to do so.
But what about really big purchases?
Good question. For really big purchases — like buying a new car, home renovations, or booking the holiday of a lifetime — this might not be possible.
Having that money in your account at the end of one month, may be a stretch. But that’s okay. The 0% interest timeframe lets you spread the cost without the worry of added interest. Managing your finances to pay for that really big thing becomes a lot easier.
Whether buying big ticket items or small essentials, always make sure the balance is fully paid off before the 0% period runs out.
3. The card that makes it easier to pay off debts
Say, you’ve got two or three credit cards already. You want to clear the balance on those without racking up interest fees, managing multiple statements, and juggling different payment dates.
Meet the Balance Transfer card
Think of this as your outstanding balance control room. By paying a fee, you move all your unpaid credit balances onto one card. This fee is usually 2%–3% of the amount you’re transferring.
Balance transfer cards give you 0% interest for a set period.
The benefit: more time to pay off larger, outstanding credit card balances, without extra charges piling up.
A couple of words to the wise about balance transfer cards:
- Cards with longer 0% interest offers could have higher transfer fees. Work out how long you need the interest-free period for. You may not need all that time to pay off your debts, for example. Then, look at the balance transfer fee and see if it’s worth it.
- You could save money by choosing a card with a shorter 0% interest offer and lower transfer fee.
- These cards can be used for buying things, but there’s interest on purchases. A better option is having a separate card for regular spending. Like a purchase card.
4. The one to use if paying off credit, but still need some credit to spend.
When you’ve got credit balances you need to clear and want to avoid extra interest, but you still need to buy essentials.
Meet the Balance Transfer and Purchase card
This two-in-one offers a 0% interest-free period on transferred debts, as well as 0% interest on new purchases made.
With this one card you can clear debts and continue with essential shopping. Without worrying about interest fees.
Like any offer, the no-interest period is limited. It also tends to be shorter than dedicated balance transfer cards or purchase cards. Bear this in mind and check the timeframes before applying.
This card is beneficial when you’re completely sure you can clear all debts transferred plus the cost of new spending, before the 0% interest time expires.
5. The card that pays you to use it
You heard right. A credit card exists that gives you money back when you use it and clear the balance on time.
Meet the Cashback card
The Cashback card rewards good spending habits. Using the card to buy things and clearing your balance in full each month puts you in the lender’s good books. The reward is a percentage of what you’ve spent — straight into your pocket. You can expect to get between 1%-5% cashback, which is better than a kick in the shins.
One thing with cashback credit cards: they can have high interest rates. Getting hit with a late fee because of a missed payment means paying levels of interest higher than what you earn in cashback rewards.
Discipline is key. You’ll only reap the benefits if you clear your balance in full, every month.
6. These cards reward loyalty
They can get you money off at the supermarket or petrol station, get you nice gifts from brands you like, or fly you places.
Meet the Reward card & Store card
These cards give you points to spend or open up attractive deals when you clear your balance each month. With store cards in particular, when offered one at the till you’ll probably be told about their attractive introductory or member-only offers.
Before applying for either of these cards, it’s a good idea to:
- Think about what you want to earn points for — is there a specific thing you can work towards and spend your points on?
- Make sure you pay your balance back in full each month. Avoid buying big ticket items with these cards.
- If taking out a store card, always check the fine print because they can turn out to have annual percentage interest rates as steep as 32%.
Credit card companies hope you’ll be attracted by their rewards or limited offers, but not clear your balance. They benefit from interest charges, which earns them far more than they’ll have to spend on rewards.
When searching for your ideal rewards card look at what delivers the biggest value of points, per pounds spent.
7. When you need a card you can use overseas
The cost of using a credit card overseas can leave you feeling sorer than sunburn. The best treatment? Pack a card designed for a jet-setting lifestyle.
Meet the Overseas spending card
When away from home, paying for items with a credit card can be safer than cash, offer extra protection (thank you Section 75), and can offer added security in case of holiday emergencies.
Used outside the UK, standard credit cards charge a fee of around 3% of every transaction. This is applied every time you use the card. Those transaction charges quickly add up.
Although some overseas spending cards still have fees, they’re much lower. Other holiday-friendly credit cards can waive the fee completely.
In either case, with an overseas card you can go ahead and buy all the tourist souvenirs you want need, without incurring multiple pounds-worth of fees.
Using TotallyMoney helps you choose the right card
Having the confidence to apply for a card comes from being well-informed, so you make smart decisions about your credit.
By using TotallyMoney’s free services you have vital information about your credit score and Borrowing Power before applying. This boosts your chance of approval and means you’re presented with the cards that are the right fit for you.
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