Choosing the right credit card

choosing-credit-cardsThere are hundreds of different credit cards to choose from, which can make it difficult to track down the right one to suit your needs.

Here, we take a look at the various different options that are available - simply find the description which best applies to you to discover which sort of credit card might suit you...

 

I clear my credit card balance every month without fail

If you pay off your balance in full every month, then you needn't worry about the interest you are charged. Instead, you should choose a card that works for you, earning you cashback or rewards every time you spend.

Several cards operate generous schemes which get you money back on your spending, or you can get Avios miles (formerly Airmiles) or shop reward points. The card that is best for you will be influenced on how and where you shop. If you're a Tesco fan, its Clubcard Credit Card could be a good option, but you won't get the full benefit if you're a Sainsbury's shopper in which case the Sainsbury's Nectar Credit Card would be a better option.

If you aren't loyal to a particular brand, you might prefer a standard cashback card which enables you to earn money back on your spending.

 

I have credit card debts and am sick of paying steep rates of interest

If you are confident that you are going to be able to pay off your existing credit or store card debts within a couple of years or less, then you may want to consider a card which offers lengthy introductory rate of 0% on balance transfers. 

It's possible to find cards that don't charge any interest on balance transfers for as long as 22 months, although you will need to have an excellent credit rating to qualify for the best deals.

If you are moving debts onto a balance transfer card, then you will have to pay a balance transfer fee, typically 2.9%, so remember to factor this in. You won't have to pay it upfront though, it will be added to your overall balance.

It is important to be strict with yourself: if you're using a balance transfer card as a way to pay down your debts while avoiding interest charges, then further spending should not be part of your plan. Any new purchases put on a balance transfer card will usually be charged a much higher rate of interest.

 

I only repay the minimum every month on my credit card debts and know it's going to be a very long time before I'm in a position to pay them off in full

If you think it is going to take you several years to pay off what you owe, then your best option is likely to be a card offering a consistently low standard rate of interest. That way, you don't have to worry about an introductory period coming to end and interest charges suddenly shooting up.

You should always try to pay off as much as you can afford each month. If you continue to pay just the minimum, it could literally take you years to clear your debt and you could pay more in interest than the value of your original debt.

For example, it would take someone with a balance of £1,500 19 years and three months to clear their debt if they repaid the minimum of 2.5% on a card charging an APR of 17.31% (which is the average). What's more they'd end up paying an additional £1,590 in interest.  

 

I want to transfer my existing credit card debts to a cheaper card, but also need a card for new spending

If you don't want a purse bulging with plastic, consider a card which has a 0% introductory rate on both balance transfers and purchases.

Some cards offer as long as 15 months at 0% on balance transfers and new purchases, but you'll need to make sure you clear your balance during the introductory period, as interest charges will shoot up when this ends.

 

I want a card for new spending only

If you want a credit card to make a major purchase, or just to help you cover general living costs, then your best bet is to go for a card offering 0% on new spending for as long as possible.

As with all credit cards offering 0% introductory rates, you will need to ensure you pay off what you owe within the 0% period, otherwise you will suddenly find yourself paying a typical representative annual percentage rate (APR) of around 17%-18%.

 

I have a poor credit rating, can I get a credit card?

If you have a low credit rating, either because you haven't borrowed before, or because you have been late or missed payments in in the past, consider a credit builder credit card, also sometimes referred to as a bad credit credit card.

As the name suggests, these allow borrowers with a bad credit history, or those who have never borrowed, to build up their credit rating, making it easier for them to be accepted for credit in future.

Providers of credit builder cards for those with a history of bad credit typically offer low credit limits initially. Then, once you have demonstrated your money management skills, this limit will usually increase a few months down the line.

Bear in mind interest rates on this type of card tend to be much higher than on standard cards, because you will be considered a higher risk by lenders.

As rates are higher, you should always aim to pay off your balance in full at the end of every month to avoid building up steep interest charges. The last thing you want to do is find yourself struggling with debts and damaging your credit rating further.

 

 

Disclaimer: Any content in our family money section is intended as general information only. For specific advice about your personal financial situation, get advice from qualified, independent, regulated professionals.

Last updated: 20-May-2013 at 1:15 PM