Choosing a credit card
With more than 1,500 different credit cards to choose from, the UK has one of the most competitive credit card markets in the world – but choosing the right card for you can be time consuming.
Different cards suit different people. The best card for you will depend upon how you intend to use it. Before you choose a card you should consider your reasons for wanting it along with how you intend to use it.
Check out the card’s Summary Box on the credit card’s marketing material or on your credit card statement. The Summary Box is the industry standard way of presenting the key features on a credit card (including fees and charges).
Over the last decade, the cards industry has worked on a range of initiatives to improve transparency and promote responsible lending.
Before choosing a credit card, it is worth asking yourself the following questions.
What do you want your credit card for?
- To enable you to buy goods and services without the need to carry cash in your pocket.
- To spread the cost of spending over a number of months.
- To take advantage of special offers.
- For emergencies – as a standby to give you easy access to credit if you need it.
- To support a charity or other organisation.
- For use in a certain situations such as abroad or for online purchases.
What are the most important features for you?
- The interest rates – for purchases, balance transfers, cash advances and credit card cheques.
- The length of the interest-free period for purchases.
- Incentives and benefits such as cashback, rewards or loyalty points.
- Being able to manage your account online.
- Using your credit card when you are abroad.
Once you have determined what you want a credit card for, and which benefits are most attractive to you, you can start to compare cards - think carefully about your choice before committing to one card or another.
Asking yourself the questions below may also help – be completely honest in how you expect to use your card.
Will I usually pay-off the balance in full each month?
If you intend to clear your credit card bill in full each month then the interest rate for purchases is less important for you as you will not usually incur any interest at all. You should consider the annual fee (if there is one), the length of the interest-free period and perhaps any rewards or cashback offers.
Will I borrow occasionally?
If you intend to borrow occasionally on your credit card then the interest rate for purchases will be an important consideration, as you will be paying interest when you borrow. You should also bear in mind the length of the interest-free period (the longer, the better) and the annual fee (if there is one).
Will I usually only pay part of the bill?
If you intend to pay-off only part of your bill each month then the interest rate is very important, as you will pay interest most of the time. You should consider the standard rate as well as any introductory rate of the credit card.
Will I use my card to get cash advances?
If you intend to use your credit card to get cash advances then you should consider the interest rate and fees for cash advances. Typically, credit cards have a higher interest rate for cash advances than for purchases, and are usually a more expensive way of obtaining cash than a current account using a debit card.Furthermore interest is normally payable from the day you obtain the cash advance - there is no interest-free period as there is for purchases.
Do I want to buy a number of large value items that I can pay-off over a number of months (e.g. when furnishing a house)?
If you are intending to buy a number of large value items that you can pay-off over the future months then consider whether a card with an introductory interest rate would be suitable. If you plan to use the card after the initial period, and anticipate that you won’t pay-off the full balance each month, then you should also pay attention to the standard interest rate.
Do I want to reduce the interest payments on my existing card(s)?
If you want to reduce the interest payments on your existing card(s) then consider transferring your balance to a new card with a lower interest rate for balance transfers. Check what interest rate is offered for balance transfers and any related fees. If you plan to use the card after the initial period and anticipate that you won’t pay-off the full balance each month then you should also pay attention to the standard interest rate.
Do I travel abroad often and rely on my credit card to cover my expenses whilst I am away?
As well as the interest rate, you should also be looking at the fees for transactions in foreign currencies and fees on cash withdrawals. If you want to obtain foreign currency you may also want to compare these costs with your debit card.