Guide to Getting the Right Credit Card for. You. compareandsave.com

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1 Guide to Getting the Right Credit Card for You

2 Guide to Getting the Right Credit Card for You Credit cards are one of the few financial products that divide opinion. On one side consumers may blame their card for sending them into unmanageable debt. Whereas, there are those that look at the benefits they offer, such as rewards, cashback and increased consumer protection. The truth is that when a credit card is used effectively, it can be an incredibly useful financial tool. However, it does depend on the individual s circumstances and the specific card being used. Before choosing a credit card, there are a few things that consumers should consider: How good is your credit report? As with all forms of borrowing, a credit card application involves a credit check. This is so the lender can see the applicant s score; a figure calculated by looking at repayment history, credit utilisation and so on. Only people without a blemish on their credit report will be able to apply for the marketleading deals, so it is important that people are aware of their score before sending off applications as this will prevent unnecessary rejections. There are three main credit reference agencies, Experian, Equifax and CallCredit (Noddle). Individuals can get a copy of their credit report for a maximum fee of 2, or they can sign up for an online account. The first two offer a free one-month trial, but cost and a month respectively thereafter, whereas Noddle is free for life. How do you intend to use your credit card? Once individuals are aware of their credit score, they will be able to narrow down the market choice. However, they will still need to think about how they intend to use the credit card. People carrying high balances are more likely to want a low-interest credit card, but if they intend to repay what they owe, a 0% balance transfer card might be a better option. Heavy spenders that repay in full each month could definitely benefit from cashback and reward cards. Whereas, someone with a low credit score, might need to start off with a credit-builder credit card. 1

3 People carrying high balances are more likely to want a low-interest credit card, but if they intend to repay what they owe, a 0% balance transfer card might be a better option. Heavy spenders that repay in full each month could definitely benefit from cashback and reward cards. Whereas, someone with a low credit score, might need to start off with a credit-builder credit card. Getting a good deal on a credit card depends on the applicant s circumstances. While a credit card with 0% interest for 12 months on purchases sounds great, if it s only being used to pay off existing debt, then the benefits are useless. Types of credit cards There are lots of different types of credit cards to suit different people and their circumstances. Here is a brief overview of the most popular ones on the market and who they are suitable for. 0% Balance Transfer Cards A balance transfer allows cardholders to move expensive debt to a cheaper card, reducing the cost of borrowing. They can take advantage of the introductory period and repay their debts without incurring any interest charges. For example, if someone has a 5,000 balance on one card with 18.9% APR and 2,000 on a store card with 34.9% APR, they could shift the whole 7,000 debt to a 0% balance transfer card. Some balance transfer credit cards also offer interest free purchases, but it is worth applying for a separate card for spending. Watch out for : The APR at the end of the introductory interest free transfer period Who do they suit? People that want to repay outstanding debts on cards with higher interest rates. Things to consider: Remember to continue paying the minimum payment Calculate the balance transfer fee usually 2-3% of balance Do not make purchases on the balance transfer credit card 2

4 For more information on 0% Balance Transfer card read our Guide to Balance Transfer Cards or Click here to compare balance transfer credit cards. 0% Purchase Cards Interest-free purchase cards are designed to help people spend without having to repay the balance in full at the end of the month. If the balance is not cleared, interest will be applied, sending the cost of purchases soaring. These 0% cards allow cardholders to make expensive purchases and spread the cost. However, it is important to put money aside to pay the balance at the end of the period or the typical APR will be applied. Watch out for : The standard APR at the end of the introductory interest free purchase period. Who do they suit? People that want to borrow money to spend, but are unable to pay off the balance in full immediately. Things to consider : Length of the interest free period Typical APR Ability to repay balance at the end of the month Low Interest Cards Unlike 0% balance transfer or purchase cards, these credit cards offer cardholders a low interest rate (APR) for life. The average interest rate is around 19% APR, but low interest cards can be as low as 7.8%, although many are closer to 10%. Despite having a very low interest rate compared to most cards on the market, they rarely offer the best deal, so it is important to compare what it available. Watch out for : Annual fees. Who do they suit? Suited for people who use their credit card occasionally, but don t always pay the balance in full. 3

5 Things to consider : Whether another card is better suited Interest rate Eligibility criteria Cashback & Reward Credit Cards Some credit cards entice people to spend on them by offering a reward for doing so. Different cards have varying rewards some give cardholders cash-back, air miles or loyalty-based rewards. These credit cards usually have a high interest rate, so they are only suitable to people that pay off the balance in full each month, otherwise the cost of interest outweighs any reward. Watch out for : High interest rates if the balance is not cleared each month. Who do they suit? Suited to people who use their credit card as a spending tool and repay the balance in full every month. Things to consider : Do the rewards outweigh any interest charges? Will the rewards offered actually be used? What is the equivalent cash value of the rewards? Credit Building & Bad Credit Credit Cards Individuals that want to build their credit score can find themselves in a catch-22, as it s impossible to improve their rating without being able to borrow, but most lenders won t lend to people with a low score. However, credit-builder cards, sometimes called bad-credit credit cards, are suitable for people with poor or no credit history. They offer low credit limits with high interest rates, but they should only be used to demonstrate good borrower behaviour. 4

6 Watch out for : Paying your balance - If you have applied for a credit building product to improve your credit score you must ensure you pay at least your minimum payment on time every month - otherwise you will damage to your credit score even further. Who do they suit? People who are not eligible for standard credit card products but want to rebuild their credit score. Things to consider : Relatively high APR's Low credit limits For more information on Credit Building card read our Guide to Cards for Rebuilding Your Credit Score 5