How to choose the right credit card

There are many different reasons to get a credit card. And different cards have different features to suit different purposes. So before you get a credit card, it’s a good idea to know what benefits you want, so you can get the most value from it.

Choosing the right credit card

First, let’s cover how to use a credit card. A credit card is used to pay for things in place of cash or a debit card. The credit card company sends you a bill at the end of the month, which is the total of your expenses. You should pay your bill each month. If you don’t, or you only pay part of it, you will probably have to pay interest and fees in the next bill. 

All credit cards should serve this basic function. But there are different types of credit cards that offer extras features. For example, higher spending limits and no foreign transaction fees if you use it to pay while abroad. 

Other features and benefits you may want to think about are:

Building your credit score - credit cards for bad credit

A credit card is a great way to establish your trustworthiness to UK’s credit agencies. (Read our guide on how to use a credit card to build credit).

But if you have a poor or limited credit history, it is going to be difficult to get approved for most cards. But don’t despair: there are many cards that target people looking to establish or improve their credit score. 

Credit cards to build credit tend to have less frills than other cards: lower spending limits, no rewards, high interest rates and fees. But if used responsibly, you should see a significant jump in your score after a year or two. This will open the door to other credit cards with more features.

Cashback and rewards - get cash and discounts from credit cards

Some cards reward you for using them by giving you air miles, tickets to concerts and films, discounts at select stores, or even cash back on purchases. 

These types of cards are useful for people who use credit cards a lot, pay off their balance each month, and plan to use the rewards. Be sure any fees associated with the cards do not outweigh the benefits.

Lower interest rate on debt – focus on paying off debt, not the interest

If you are struggling to pay off debt on multiple credit cards, you may want to move it all onto a balance transfer credit card

Balance transfer cards can give you much needed relief because you do not need to pay any interest on the newly consolidated debt. This should make it easier to pay off the debt over time – but be sure to do this before the 0% offer expires. 

Travel credit cards - credit cards with no foreign transaction fees

Taking your credit card abroad? If you like to travel, or often find yourself paying for things in different currencies, you may want a card designed for this. 

Look for cards that do not penalise you for withdrawing money abroad, spending in foreign currency (no foreign transaction fees), and ideally offer more favourable exchange rates. 

Note of caution

Getting a credit card is easy. Using it wisely takes mindfulness and restraint. 

If you are responsible and pay your credit bill in full and on time each month you will be rewarded. It will boost your credit score over time, your credit limit can increase, and you may be eligible for more rewards.  

Unfortunately bad credit card use and credit debt is all too common in the UK. It can be crippling and hard to escape from. So to keep your credit cards in good standing, follow four simple guidelines:

1. Make sure to keep up minimum payments and avoid late payments. Aim to never fall behind on payments. Should you miss a payment, fees will be punishing. If you are able, set up automatic payments from your bank account and put a reminder in your calendar when bills are due.

2. Don’t spend more than you can afford. If you can’t pay it off quickly, don’t use your credit card to buy it. Interest fees on unpaid credit debt can be extraordinarily high, which can quickly put you into long-term debt. 

3. Watch out for transaction fees. These can add up quickly, so review your bill each month and decide how you can spend more strategically or if you should switch cards.

4. Track your spending. You are more likely to use a credit card responsibly if you have a good overview of your finances, including how much you can afford to spend and how much you’re paying in fees. A free financial tracking app like Money Dashboard will keep you updated at all times. It will clearly show you how much you are spending, how much cash you have, the total spent on fees, and how your spending habits are changing over time.

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All content is for informational purposes only and is the opinion of the author. Nothing on this website should be interpreted as "advice". Money Dashboard Ltd make no representations as to the accuracy, completeness, suitability or validity of any information on this site and will not be liable for any errors or omissions or any damages arising from its display or use.

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