Guide to Credit Cards

With so much choice when it comes to credit cards in the UK, it can be hard to narrow down what you feel is the best credit card for you to just one. We’ve made it easy for you by compiling a list of  credit card key features and benefits that are likely to matter the most when you’re choosing a new card.

What is a credit card?

A credit card is a card issued by credit providers like banks or building societies that offers a type of loan that lets you buy goods and services on credit. When you pay for items with a credit card, the card issuer is essentially lending you the money and agreeing to pay for those goods on your behalf. This amount becomes the balance of your credit card.

How do credit cards work?

The credit provider that issues the credit card makes the payment to the merchant on your behalf, and tallies a debt balance for you. You have the option at the end of each month to either pay off your entire balance, or to only pay off some and accrue interest on the remaining balance. In order to attract customers, many credit card issuers attach attractive offers to cards, such as long periods of 0% interest or rewards for everyday spend.

How does credit card interest work?

Credit card interest is the fee a card issuer may charge when you borrow money with your credit card. This interest is usually expressed as a yearly rate, which is known as the annual percentage rate (APR).

There are different types of APRs for purchases, balance transfers, and cash advances, and each type charges interest differently. However, most top-rated credit cards will only charge interest for purchases that aren’t paid off by the payment due date. So if you use your card and don’t pay the whole balance off at the end of your billing cycle, you are likely to be charged interest.

The good news is, by paying off your balance each month, you should not have to worry about credit card interest or APR. The APR may seem like a big factor in your choice of the best credit card for you because it’s an easily comparable number across cards, but for most cards it really isn’t important if you’re paying off your card each month.

If you’re shopping for a credit card, we recommend paying off your existing credit card debt and having a clear budget in mind that you know you can pay off each month, so that you’re ready to find a card without APR being a big deciding factor.

Key credit card terms defined

Before we go any further, let’s define some key terms you need to understand to pick the best credit card deal for you.

Credit Card Term	Definition
Annual fee	A charge you pay every year to use the card and access its perks (if applicable)
Annual percentage rate (APR)	An estimate of the yearly costs of a credit card including interest and compulsory charges
Balance transfer	When you move money you owe from one credit card to another that (typically) charges less in interest
Credit card provider	A bank or financial institution that offers credit cards to customers
Credit limit	The maximum credit balance on your credit card
Credit score	A number that indicates how reliable you are when it comes to borrowing and repaying money
Foreign transaction fee	A charge made by your credit card company when you buy items through a foreign bank or in a foreign currency
Interest rate	The cost of borrowing money with a credit card
Minimum payment	The smallest amount of money you have to pay off from your balance each month
Welcome bonus	An incentive offered to entice new customers to sign up for their credit cards

Types of credit cards in the UK

Different credit cards come with different super powers, just like superheroes. Because there are so many different types, it’s important to understand these differences and then figure out which type is best for you.

Let’s take a look at those main types of credit cards:

• 0% balance transfer credit cards — With a balance transfer card, you’re able to transfer debt from another credit card to the new one, and then benefit from an extended period of 0% interest on that balance. The top cards in this category can give you more than two years of 0%. The benefit can be great in terms of savings on interest.
• 0% purchase credit cards — Like balance transfer cards, 0% purchase cards provide a period of 0% interest on your balance. The difference is, instead of offering that 0% on an existing balance that you transfer, you get 0% on new debt that you accrue through purchases on the card. The 0% periods for these cards can reach two years or more as well.
• Rewards and cashback cards — Rewards cards typically accrue rewards on eligible purchases in terms of points or miles for every £1 you spend. They can be redeemed for spending vouchers, flights, hotels, cash back and more. Points-based rewards cards are often tied to specific retailers, making them a great choice for shoppers who frequent that retailer. Travel-focused rewards cards also often have other benefits (such as no foreign transaction fees when used abroad or access to no-fee Travel Money) that 0% APR cards and cashback cards are less likely to have.
• Travel cards — If you’re a frequent traveller, you may already know how costly non-sterling transaction fees can be. A non-sterling transaction fee (or foreign transaction fee) is a fee that gets tacked on to your purchase when you swipe your credit card abroad. These fees can often be as much as 3%. Travel cards do away with non-sterling transaction fees, so travellers can swipe without those extra costs.
• Credit-building cards — There are two primary circumstances that might have you looking at credit-building cards. You may be brand new to credit and not have a credit history. Or you may have hit a pothole on the great financial highway and are trying to rebuild your credit. Credit-building cards also usually don’t come bundled with benefits like 0% intro APRs or rewards. The biggest benefit of all with these cards is right in the name: credit building. For those that use these cards responsibly, the result could be an increased credit score that can help them obtain a great 0% credit card or a fun rewards card. Student cards could be considered part of this category, since students typically have little to no credit history.
• Business cards — No surprise that these cards are aimed at business owners. Generally, they have higher credit limits to support usage in high-spending business contexts. For business owners that want to draw a clear line between their business and personal spending, these cards can be a good choice. Business credit cards can also be a way for businesses to start a financial relationship with a bank that may be able to help the business with other financing needs as the business grows.

Do you need a credit card?

Though a large percentage of adults have a credit card, they aren’t for everyone. There are however, some great benefits of using a credit card.

• Improve credit rating: A credit card can help build your credit rating just by using the card and paying off your balance on time. This opens the door to qualifying for other loans in the future, such as a mortgage, at a lower interest rate.
• Earn rewards: Some cards offer rewards in the form of points or cashback that give a percentage of your spending back to you. And it’s hard to argue with being rewarded for spending you would do anyway, provided that the reward exceeds any fees or interest.
• Fraud protection: Using a credit card can protect you against the shady characters out there that have bad intentions for your money. In most cases of credit card fraud, credit card companies have your back and you won’t be on the hook for charges that fraudsters rack up.
• Extra perks: Many cards offer perks including no-fee travel money, purchase protection, and travel accident insurance. These may seem like “little things”, but it could mean hundreds of pounds of savings.

How many credit cards should you have?

Having more than one credit card may allow you to capitalise on various rewards, balance transfer opportunities and 0% interest deals.

However, having multiple credit cards can make it more difficult to keep track of spending and manage your budget. This can naturally lead to overspending for some consumers.

Although there is no fixed number as to how many cards you should have, it is logical to consider the impact on your credit score and overall financial situation before getting more than one credit card.

Here’s a good rule of thumb:

You should only have one credit card if…

• You’ve had problems with missed credit card payments in the past
• You want to keep your finances as simple as possible

You may want to explore multiple cards if…

• You’re confident you can manage having multiple cards
• You can use features from multiple cards to get more value overall
• You’ll have more available credit, which helps maintain a lower credit utilization ratio and can increase your credit score

You should not have a credit card if…

• You’ll spend more money than you would if you paid with cash
• You can’t afford your monthly payments

Remember that any number of credit cards can be too many if you can’t afford to pay your monthly payments or don’t plan to use them responsibly. The right number of cards for you will depend on your personal situation.

Should you pay an annual fee for a credit card?

All things held equal: avoid an annual fee. This is money that comes out of your pocket, and whether the card is giving you points, rewards, or other benefits, paying an annual fee reduces your benefit.

But things aren’t always equal, and cards with an annual fee may give you more points or more cashback. By doing some easy maths, you can figure out whether a higher-earning card with an annual fee may be a better deal for you. If your plan is to spend heavily on a particular card and really rack up points or cashback, then an annual fee may well be worth it. If you ask us though, rarely does it make sense to carry two cards that sport an annual fee.

What is the best credit card deal?

Are you ready to hear the secret formula for finding the perfect credit card?

We’re kidding, of course. There’s no secret formula, and, to be frank, there’s not even one ‘best’ credit card. The reason is that everyone has their own particular financial circumstances. So what may be a great credit card deal for you may be terrible for someone else.

Figuring out the ‘best’ credit card for yourself goes back to what we talked about earlier — understanding the different types of cards, and deciding which type of card (which primary feature) best fits your circumstances.

Again, the term ‘best’ credit card lies in the context that it’s used. For someone ideally looking for a cashback credit card, even the ‘best’ balance transfer card is unlikely to be a good match. And as great as the ‘best’ traveller credit card might be, if someone has poor credit, getting approved would be unlikely.

Things to consider when choosing the best credit card for you:

1. Rewards and cashback: If possible, rewards or cashback just by using your card are great benefits.
2. Annual fees: While most of the time you want to avoid your card costing you money, there are times when an annual fee means you can unlock great features. Be sure to evaluate if it makes sense for you.
3. Introductory perks: Some cards will offer perks like introductory interest-free periods or sign-up bonuses that sweeten the deal.
4. Extra bonuses: This could be anything from access to your credit score to fee-free cash withdrawals.

With these four factors in mind, you’re ready to start looking for the best credit card deal for you.

How to choose a credit card

So now you’re ready to choose a credit card that best fits your needs. Here are some things to consider:

1. Outline your financial goals

As with the examples shown above, knowing what you want out of a credit card is an incredibly important first step. Do you need help rebuilding your credit score? Want to access rewards for everyday spending? Clearly outlining your financial goals helps you prioritise the type of card and the specific features that are best for you.

2. Choose the type of card you need

There are a lot of credit cards out there, and trying to decide the right type for you can be challenging. Here are a few common questions to think about:

0% cards: 0% balance transfer or 0% purchases?

With a balance transfer card, the 0% interest only applies to balances from other credit cards that you transfer to your new card.

But, unless the card also has a 0% purchases offer, the 0% interest will not apply to new spending on that card.

That makes deciding between 0% balance transfer and 0% purchases relatively easy. If you have an existing balance on a card that you’re paying high interest on, you’re probably better off with a balance transfer card. If you’re more concerned with paying 0% interest for a period of time on new spend, then think 0% purchases.

There are cards that have both a 0% balance transfer and 0% purchases offer. These can be a good option if you have an existing credit card balance and you’d like a period of time with 0% interest on new spend.

Cashback or points?

If you’re looking for a safe choice between cashback and points, cashback will always be more flexible.

But if you’re a frequent shopper at a particular retailer or retail group (like Tesco or Sainsbury’s), then earning and using points wisely could yield you even more than you could get with a cashback card. We just talked about annual fees above, but that’s worth noting here too. When comparing cashback or points cards, be sure to deduct that annual fee from any rewards you’re expecting.

Cards for poor credit and credit-building cards

When you’re in the process of building or rebuilding your credit rating there’s a good chance that you’re a bit skint. For that reason, we prefer credit-building cards that don’t carry extra fees. 

Expect that most credit cards available to those with poor or no credit will have much higher representative APRs than those for people with good or excellent credit. Even so, looking for the lowest APR that you can find is a good idea. Better still is to look for a card that offers a 0% introductory period for purchases or balance transfers.

Cards for those with bad credit are also likely to have a lower credit limit. A high credit limit could encourage excessive spending, which is exactly what you want to avoid when rebuilding your credit rating.

3. Compare card features

The features that are most important may vary depending on the type of card you’re choosing, but generally, you’ll want to closely compare these features:

• Rewards and cashback
• Annual fees
• Introductory perks
• Extra bonuses

Make sure when you’re comparing cards, you’re carefully reading the fine print of each card. Keep an eye out for extra fees or penalties for late payments.

4. Check your eligibility

Lastly, before you apply, it’s a good idea to check your eligibility so you don’t hurt your credit score by applying blind and possibly getting denied. Take a few minutes to use a credit card eligibility checker to know whether you qualify without the hard check on your credit report.

Once you’ve tackled these steps, you’re ready to choose the best credit card for you and start applying.

How to apply for a credit card

Applying for a credit card isn’t too complicated. Here are the four usual steps:

1. Apply for your chosen credit card by submitting an application online, at the bank, by post, or over the phone.
2. Fill out the required information, including your name, mailing address, and date of birth. You may also be required to give financial information like your income or net worth.
3. Submit your application. Sometimes you get an immediate approval or denial, and sometimes you must wait while your application is being reviewed.
4. If you’re accepted, you can start using the card – but don’t get carried away. Remember to use your card responsibly and not overspend.

What should you do if your credit card application is denied?

The most important thing to do is to not re-apply immediately, as multiple applications in close proximity will likely dent your credit score further.

Instead, check your credit record to see whether something linked to your financial history is negatively affecting your application. Additionally, reach out to the issuer for the reason behind your application being declined, and they should be able to tell you in broad terms.

If you’re not able to get the provider to overturn their denial, you could:

• Spend a few months focusing on improving your credit score and reapply for the same credit card, or..
• Apply for a credit card for poor credit, build your credit with that card, and then later apply for the card you want when you better fit the qualifications, (remembering to check that the terms of the card have not changed in the interim.)

How to use your credit card responsibly

A credit card is a great financial tool if you use it responsibly. Here are  2 important things to be mindful of to keep you out of debt:

1. Pay your bill on time and in full

Most credit-card companies don’t take kindly to being paid late. To be sure, there are grace periods for cardholders that usually pay on time. But if you have a habit of missing due dates on bills, then having a credit card could mean aggravating fees and extra interest. It’s best to pay on time and in full each month.

2. Don’t overspend

Only use your credit card when you would also make the purchase if you were going to pay in cash. In other words, only spend what you could afford from your bank account at any given time. This will help you avoid going into debt and racking up interest.

Learn more about credit cards and your credit score

• Learn more about credit cards in What is a Credit Card and How Does it Work?
• The downside of credit card usage can be seen in the average credit card debt in the UK
• Get more information on how to choose a credit card

Frequently Asked Questions

How are credit cards useful?    

If you’re new to credit cards, you may be wondering why they might be useful. To be sure, they make paying at the grocer easier. But there’s quite a few other reasons you might consider using a credit card.

• They can benefit your credit score — There are myriad ways your credit score can come into play. Obviously, when you want to apply for a credit card. But also when you’d like to borrow money for a new car, a house, or basically any other large purchase. It helps to have a rock-solid credit score so that when the time comes that you need to borrow, banks will see you as a worthy lender. When you use credit cards responsibly, that good behavior gets reported to the credit rating agencies by the card issuer and can help increase your credit score. This can be the case whether you already have a good credit score and would like to make it a great credit score, or if you have a poor credit score or little credit history, and would like to build to a better score.
• You can sometimes borrow money on the cheap — Be careful with this one. Normally, credit cards aren’t a great way to borrow money. The standard APR on most cards is high enough that you’ll be better off borrowing money other ways. But 0% purchases or 0% balance transfer credit card offer very low-cost ways to borrow. You just have to be very sure to pay off the cards before your 0% period runs out.
• Protection against fraud — Wouldn’t it be nice if we lived in a world where we didn’t have to worry about this? Maybe one day. Until then, using a credit card can protect you against the shady characters out there that have bad intentions for your money. In most cases of credit card fraud, credit card companies have your back and you won’t be on the hook for charges that fraudsters rack up. The same can’t always be said if someone gets hold of your debit card or bank account information.
• You can get rewarded — Rewarded for what? Rewarded for doing the spending that you would do anyway! Look, credit cards need to be used responsibly, so this isn’t an excuse to get crazy you’re your spending. But many cards offer rewards in the form of points or cashback that give a percentage of your spending back to you. And it’s hard to argue with getting handed cash or rewards.
• And then… the “little things” — Many cards offer perks including no-fee Travel Money, purchase protection (in case a new toy gets stolen or damaged), and travel accident insurance. These may seem like “little things”, but for savvy spenders that take full advantage of them, it could mean hundreds of pounds of savings. Try getting a wad of cash to do that for you!

How do you cancel a credit card?    

Normally, cancelling a credit card is a relatively simple process. The specifics vary from bank to bank, but you will usually have to call the credit card customer service line and tell them that you'd like to cancel your card. Often there is also an option to send a letter by post to inform the issuer that you'd like to close the account. Bear in mind that any balance which is still due on the account will need to be paid off prior to closing the account. Closing a credit card can also hurt your credit score, so be sure to take that in consideration before closing your account.

Can you withdraw cash from a credit card?    

In most cases, the answer is 'yes'. But though you usually can withdraw cash from a credit card, the better question may be: Should you withdraw cash from a credit card? The answer to that is usually 'no'. That's because most cards not only charge a cash advance fee (typically 3%), but you'll be charged interest starting from the day you take out the cash -- as opposed to having until the end of the month, as is the case with most new purchases. This makes a cash advance on a credit card a fairly poor proposition. And introductory 0% periods usually don't apply to cash advances.

What if my credit card application is turned down?    

Most importantly, don’t re-apply immediately, as multiple applications in close proximity will likely dent your credit score further. Instead, check your credit record to see whether something linked to your financial history is negatively affecting your application. Additionally, reach out to the issuer for the reason behind your application being declined, who should be able to tell you in broad terms.

How do I get a lower interest rate?    

You’re entitled to request a reduction in the interest rate from your credit card’s issuer, though their answer will depend on certain criteria. This includes whether you’ve historically paid your balance in full and on time, and how high your credit score is.

Additionally, if you have personal circumstances that are impacting your ability to pay your balance (e.g. unemployment), the issuer will take that into account.

What is a credit card minimum payment?    

Calculated from your most recent statement balance, this is the lowest amount of money that you have to pay towards credit card debt each month in order to avoid additional charges and to stay in good standing with the card issuer.

Should I be using a credit card?    

Though around 60% of adults in the UK have a credit card, they aren’t for everyone. As we’ve discussed here, there are some great benefits for using a credit card. It’s an easy way to pay for things. And you can rack up points or even get straight-up cash just for making purchases. But, if used irresponsibly, credit cards are also an easy way to get stuck under a big pile of debt.

Using the list below as a guide will help you keep debt in check.

• Use your credit card responsibly. — For some people, the urge to spend can be overwhelming. If you’re thinking about taking out a credit card, be sure you can trust yourself to stay within reasonable spending limits.
• Stay current on your bills. — Most credit-card companies don’t take kindly to being paid late. To be sure, there are grace periods for cardholders that pay on time most of the time. But if you have a habit of missing due dates on bills, then having a credit card could mean aggravating fees and extra interest.
• Make sure your income is reliable. — One of the reasons that a lot of people end up falling into debt is that they experience big swings in their income. Having predictable sources of income makes it much easier to consistently pay off your credit card and stay out of trouble.
• Clear your calendar of big purchases. — Applying for credit cards has the potential to ding your credit score, at least temporarily, so if you’re hoping to borrow to buy a car or finance a house in the near future, you may want to hold off on new cards.

What will my credit limit be?    

Credit limits are at the discretion of your card issuer and will vary. Your credit score can also influence the limit set. Credit limits can also be increased and decreased after a period of time depending on how you use it and how reliable you are at paying back the balance.

How many credit cards should I have?    

Having more than one credit card may allow you to capitalise on various rewards, balance transfer opportunities and 0% interest deals.

However, having multiple credit cards can make it more difficult to keep track of spending and manage your budget. This can naturally lead to overspending for some consumers.

Although there is no fixed number as to how many cards you should have, it is logical to consider the impact on your credit score and overall financial situation before getting more than one credit card.

What credit card fees should I look out for?    

As long as you know which credit card fees to look out for, you can mostly avoid paying them. Here are some fees you should understand:

• Late payment fee – This fee is charged if you miss a monthly payment.
• Overlimit fee – This fee is applied if you exceed your credit limit.
• Cash transaction fee – This is a fee applied to any cash withdrawals you make using your credit card. This is on top of any interest charges.
• Non-sterling transaction fee – This is a fee for any transactions you make abroad or in a different currency.

There are other types of fees, such as balance transfer fees or money transfer fees, but they are specific to which type of card you have. Similarly, some cards, typically reward cards, could have an annual fee.