Credit Cards Knowledge Hub

How do I choose a credit card?

If you’re taking out a credit card for the first time it can be difficult to know what you need to look out for. Make sure you read our helpful guide on choosing credit cards, to help you select the right one for you.

Simple cartoon of a hand holding three credit cards.

It’s easy to get confused by the sheer number of credit cards that are currently available on the market today, which is why it’s important to do your research before you decide to take one out. You need to isolate what you want from a credit card and then shop around to find one that can match your needs the best.

You can find out more about the different credit cards available in our detailed guide below.

How to choose a credit card – the basics

The first thing you will need to do when searching for a credit card is to think hard about the reasons why you would like one to begin with. For example, do you want to make purchases online or abroad whilst you’re on a holiday? Or, do you want to use it to pay your utility bills or to spread the cost of an expensive purchase for your home?

The next thing you should work out is how you intend to pay off your credit card: clearing the balance monthly or spreading the repayment costs over a set period? No matter how you plan to pay back your credit card, it’s advisable to have a back-up plan of how you will pay off your credit card if you fall behind in your monthly repayments.

You will definitely need to triple check the other charges that may apply to your credit card detailed in the credit agreement.

If you are planning to make a large purchase on your credit card to help you spread the cost, it might be worthwhile considering one with an interest-free period. Or you may be interested in other perks like cashback on purchases.

Keep in mind that if the reason that you’re taking out a credit card is for borrowing purposes and you don’t intend to pay off the balance each month, then you will be accruing interest which will also have to be paid off. This can quickly spiral out of control if you’re not careful. So, one way to combat this is to choose a credit card with a lower interest rate and to check that you can afford the regular repayments.

Credit card features - what to look out for

We’ve created this simple checklist to help you find the best credit card for your needs.

Minimum repayment

Credit card companies will require you to pay a minimum amount each month. In most cases this is around the figure of three per cent of the balance that is due or £5, depending on which is higher at the time.

Charges

You will definitely need to make sure that you have triple checked the other charges that may apply to your credit card in the credit agreement. For instance, there are common charges for going over your agreed credit limit or for any late payments and even in some cases, using your credit card abroad.

Introductory interest rates

Make sure that you don’t get caught out by introductory interest rates when you take out your credit card. Introductory interest rates are lower interest rates charged to new customers, but then these increase after a set period of time.

When you are comparing credit cards, make sure you take a look at the length of the introductory interest rates and the interest rates once the introductory interest rate period comes to an end.

Cash back reward schemes

If your credit card offers a cash back reward system, this means that you can get money refunded back to your credit card according to the amount that you spend on it. Before you can take advantage of this offer, you will need to make sure that you are eligible.

In some cases, it will only apply for people who have paid off their balance in full each month – so depending on your reasons for getting a credit card, you might be better off getting one with a lower interest rate instead.

Loyalty points or rewards

These rewards and loyalty points can add up depending on how much you are spending on your credit card each month. You can usually use them to purchase goods or exchange them for leisure activities, for example.

However, sometimes loyalty or reward points can only be used in conjunction with particular brands and shops, so make sure you take the time to check if you have a rewards scheme on your credit card and how points can be used and accumulated.

Annual percentage rate (APR)

You should make sure that you check the APR on your credit card before you sign on the dotted line. Different credit cards will have different APR rates, so this will help you choose the cheapest one for your situation. You will also need to check the other fees, incentives and charges associated with your credit card, so you can use it without incurring any extra costs.

Annual fee

There are some credit card companies that charge their customers an annual fee to use their credit card. Typically, this fee is added to the amount that is due on your card each month and there will be interest to pay on the annual fee and on what you spend too, unless of course you are able to pay the annual fee off in full.

How to compare credit cards – what’s at stake

You can easily compare credit cards online. There are many different companies offering different deals and types of credit cards, so now that you know what you need to look out for, you are better able to find one that can suit your financial requirements.

When you’re researching the different options for credit cards, you will need to factor in the following:

  • Always make sure to read the summary box – this will contain the basic information on the credit card such as the interest-free period, charges and the interest rate etc.
  • If you are at all confused by the information on the credit card’s summary box, you can double check any technical terms on the UK Card Association’s website.

There are many good reasons to take out a credit card and providing you do your homework and take advantage of online credit card comparison tools, you should be able to find the right card for you.

If you have any feedback on this article please contact us at [email protected]