Choosing the right credit card for you

By Jemma Porter

There are so many different credit cards available on the market these days so it is essential that you know exactly what you are looking for before you start filling out applications. For example, some credit cards will have very low interest rates, but this does not mean they are suitable for you. Consumers need the type of credit card that will suit their personal circumstances and financial situation.

credit-card-hanger

Here is a brief description of the different types of UK credit cards available on today's market to help you choose the right credit card for you.

Standard credit cards
Low interest and balance transfer cards are the most popular cards among consumers and are available from a wide variety of lenders in including banks, building societies, supermarkets and other financial institutions. Typically, these cards are approved for people with very good to excellent credit.

  • Low interest credit cards: Low interest cards are typically offered only to consumers with very good credit. They often come with a lower rate than rewards cards, for example, and may or may not have an annual fee. These cards can come with a temporary introductory rate for a fixed period of time and may or may not have balance transfer capabilities.
  • Balance transfer credit cards: These credit cards usually come with an introductory 0% balance transfer rate, which lasts for a fixed period, typically around 12-24 months. This low rate allows consumers to transfer balances from higher rate credit cards to a card with a "teaser" rate for a fixed period of time. However, these cards usually charge of transfer fee of 1% to 4% on the amount transferred. For example, if you want to transfer £1000, it could cost you £10 to £40, which will be added to your balance on the new card. These cards are great if you can budget repayment during the introductory rate period. Otherwise, the interest rate will kick in on your remaining balance after the introductory rate expires.

Rewards credit cards
Deciding which rewards credit card is right for you can be confusing as they are so many to choose from. Many offer teaser rates and some also offer signup bonuses of miles or points, but the thing to remember is that these cards typically have an annual fee and higher interest rates. The annual fee is sometimes waived for the first year and cardholders may have to spend a certain amount of money in a specified period of time to qualify for the bonus rewards.

Read reviews of the cards online to better familiarize yourself with how they work and find a card that you think will fit your lifestyle the best.     

But if you travel and use credit judiciously, rewards cards can save you a lot of money in airfare, gas, groceries, hotels and car rentals. Read reviews of the cards online to better familiarize yourself with how they work and find a card that you think will fit your lifestyle the best. Most rewards cards require very good to excellent credit for approval.

  • Cash back credit cards: Cash back card holders have the ability to earn cash for making purchases on the card -- the more purchases made, the more rewards received. These cards often come with a cash back rate of around 1% to 2%, but this does vary between providers. Some will also offer higher rates if purchases are made at certain retailers. Consumers who tend to pay off their full outstanding balances on credit cards each month would be most suited to a cash back credit card, otherwise any rewards will be negated with interest payments.
  • Reward points credit cards: Rather than receiving cash back as a reward for making purchases, cardholders receive points which are accumulated on the account, and can be exchanged in return for gift vouchers. The vouchers can then be redeemed against things such as hotels and holidays, grocery shopping, electronics, adventure days out and much more.
  • Air miles credit cards: Similar to earning rewards points, air miles and frequent flyer credit cards allow cardholders to earn points to redeem in exchange for airline tickets. These card programmes can either be applied to any airline or are specific to a particular airline. There are usually huge bonuses available if consumers spend over a certain amount in the first few months so compare credit cards to get the best deal. And, as with all rewards cards, they typically require an annual fees and higher interest rate.

Bad credit or credit builder cards
While most UK credit cards require applicants to have a good or excellent credit rating, there are cards designed specifically to help consumers build or rebuild their credit. While these cards are often associated with very high interest rates and low credit limits, if you pay the entire balance off every month, you will not incur any interest charges. Over time, cardholders can ask to have the credit limit raised or ditch the card for a lower interest card once their credit rating has risen to a point to qualify them for a lower interest, higher credit limit card.

It's important to understand clearly the fees involved with these cards, including late payment penalties and annual fees. If managed properly, however, bad credit cards and credit builder cards can be a great, but temporary, way to boost your credit rating.

See Related: 5 questions to ask when comparing rewards cards; Balance transfer credit cards: What to consider first

Published: 8 December 2011