Every type of credit card explained - and how to know which one is right for you

Confused about credit cards? Here's an explanation from an expert (Photo: Shutterstock)Confused about credit cards? Here's an explanation from an expert (Photo: Shutterstock)
Confused about credit cards? Here's an explanation from an expert (Photo: Shutterstock)

by Derin Clark

Getting into debt to manage day-to-day finances is never advisable, but with the current economic uncertainty, having a credit card to fall back on when unexpected costs arise can provide some peace of mind.

Credit cards have gained a bad reputation over the years and it’s easy to see why. They can encourage spending beyond your means, often have high credit limits and can take years to repay if you’re only making the minimum repayment.

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But using a credit card efficiently can be a good way to manage your money. The key to using a credit card to your benefit is having a manageable credit limit, paying off the balance in full each month and ensuring you choose the right credit card for your needs.

Will you be accepted for a credit card?

Before looking at choosing a credit card, you first need to find out the likelihood of your application being accepted. Credit card lenders do not have to offer credit cards to anyone who applies and during times of economic uncertainty are more likely to become stricter about who they approve for a card.

The best way to find out your chances of being accepted for a credit card is to carry out a free credit score check. Once you know what your credit score rating is, you have an idea of your chances of being approved for a credit card.

For those with a poor credit rating, or who have had their credit card application rejected, a credit repair credit card is a possible alternative. Typically, these credit cards charge a higher annual percentage rate (APR) than other types of credit cards, but are designed for those with poor credit scores who are looking to rebuild their credit rating.

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It is also important to note that your credit score rating does not just determine whether you are accepted for a credit card, but the rate you are offered as well.

Those with a good credit score are more likely to get a lower APR, while those with a bad credit score usually find they are offered a higher APR. It is important to be aware of the APR you are being offered on the credit card before accepting the card as the advertised APR might not be the one you are offered.

0% transfer credit cards

One of the most common types of credit cards on offer is 0% transfer credit cards. This type of credit card is useful to those who have existing credit card debt on one or more credit cards, as they enable the debt to be transferred to the new credit card and has an interest-free period in which to repay the debt.

In order to transfer the debt, you will usually be charged a transfer fee and once the interest-free period comes to an end, you will be charged the standard APR on the remaining balance.

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In order to use a 0% balance transfer card efficiently, you should ideally pay off the balance within the interest-free period and not use the card to make further purchases during this period. Once the balance is paid off, making sure you repay the balance in full each month will prevent you from getting into further credit card debt - usually a direct debit can be set up to do this.

There are around 50 0% transfers credit cards available in the charts, as of 2 July 2020. Of these, six offer the longest interest-free period of 28 months, but three of these cards have opening restrictions.

Currently, M&S Bank’s Transfer Plus Mastercard, MBNA Limited’s Long 0% Balance Transfer Mastercard and TSB’s Platinum Balance Transfer Card Mastercard all offer an interest-free period of 28 months and do not have opening restrictions.

NatWest, Royal Bank of Scotland and Ulster Bank all offer 0% transfer credit cards with a 28 month interest-free period, but these cards are only available to existing customers.

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0% purchase credit cards

Generally, 0% purchase credit cards are often combined with 0% transfer credit cards, but borrowers looking to do both on one card should check as they are not always combined.

A 0% purchase credit card allows borrowers to make purchases during a set time period where they will not be charged interest for a pre-determined amount of time. These cards can be useful during short periods of time when spending increases, such as summer holidays or in the run-up to Christmas.

Although they can be a useful way to borrow money, it is important to ensure that the balance is repaid in full before the interest-free period comes to an end.

As of 2 July 2020, in the 0% purchase credit card chart, Santander offers the longest interest-free period of 26 months on its All in One Credit Card Mastercard. TSB, M&S Bank and Sainsbury’s Bank all offer the next longest interest-free period of 20 months.

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Cashback credit cards

For those who use their credit cards regularly and who pay off their balance in full each month, a cashback credit card could be the best option. These cards offer customers rewards every time they use their credit card, although borrowers should be aware that the best cashback rewards are often on cards that charge a card fee.

For example, American Express offers 5% cashback for the first six months (capped at £125) and, after this period, 1% cashback on spend of between £1-£10,000 per year and 1.25% cashback over £10,000 per year, but this card charges an annual fee of £25.

All the current types of credit cards on offer can be found on the Moneyfacts.co.uk credit card charts

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