Warning: Choosing the wrong credit card could cost you thousands

By UK CreditCards.com

Are you looking for the best UK credit card?

credit-card-stack

If so, it is vital that you pick the right card. Not all credit cards are the same, and so you need to find a card that is appropriate for your specific needs. Remember that credit cards are like tools in a tool box -- you have to pick the right one for the job.

In simple terms, most credit cards fall into one of three types:

  • Balance transfer cards -- Offer low interest rates for transferring a balance from an existing card to a new UK credit card
  • Rewards cards -- Offer incentives, such as bonus points or cash back, based on the amount you spend
  • Purchase cards -- Offer low rates on the money you borrow to buy goods and services

Balance transfer cards
Balance transfer credit cards offer low interest rates on balances that you transfer from other credit cards. The deals generally involve a very low rate for a period of 6-12 months -- and sometimes they offer a low rate for the lifetime of the balance.

Bear in mind that you will probably be charged a fee of between 2 and 3% for making a balance transfer.

Purchase cards
Credit cards with "purchase" deals are suitable for you if you can't afford to pay off your credit card debt in full at the end of every month.

If you plan to maintain a balance on your card following a purchase, make sure that you find a deal that offers a low interest rate for a certain period. This means that you will minimise the interest you pay on the goods or services you have bought using your card.

Rewards cards
If you plan to use your credit card regularly, but you don't maintain a balance, rewards credit cards could be perfect for you. Rewards cards award points, cash back or Air Miles based on the amount you spend on your card.

If you pay off your credit card debt every month, you can use these cards to generate some useful savings.

See related: Do credit cards foster financial stability?; Capitalise on balance transfer credit card deals

Published: 28 February 2011