How to choose a credit card

When choosing a credit card, you'll probably quickly find out that there are a huge number available and picking the most suitable one is not easy.

The interest rates applied to new purchases can vary widely – and many providers now offer low rates on debts transferred from other cards.

It is worth also thinking about other benefits such as low charges for overseas use or rewards and cashback on any spending.

So what is the right type of credit card for you? We go through our top tips to show you how to choose the one that best meets your needs.

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What is a balance transfer credit card?

If you have substantial credit card debt and are paying a large amount of monthly interest, it might be worth considering a balance transfer card.

A balance transfer credit card allows you to move debts to a new zero-interest card: the interest-free period can last for as long as three years in some cases. Balance transfer cards may offer interest-free periods on new purchases as well, so it’s well worth shopping around to find the best credit card deal.

However, be aware that there are balance transfer fees involved. Each transfer carries a fee, which is a proportion – usually around 3% – of the debt you move.

To ensure you pick the right balance transfer credit card, compare the fee, the length of the interest-free period, and the conditions on new spending.

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What is an interest-free credit card?

For large scale purchases that you won’t be able to completely pay off by the end of the month, then choosing a credit card with a low or even zero-interest rate is a wise move as it will greatly reduce the total amount you will have to pay back in the long run.

If you can find a great deal on an interest-free credit card, these are also a great choice as most give you a period of more than two years to pay back the original credit card debt without running up interest costs.

Some of these can have stricter eligibility criteria though, so be sure to give the terms and conditions a good read through before applying.

Find out more about the protection you get when paying with a credit card

Using your credit card abroad

Using your credit card abroad can be very risky as many credit card providers can hit you with various withdrawal fees, which if you’re not careful can end up becoming very expensive.

While exchanging money before you go abroad is the safer option, if you feel safer using a card, it’s worth seeking out a provider that offers a travel credit card.

These often come with low foreign-usage charges, so you can ensure any fees you acquire while abroad are kept to an absolute minimum.

What is a cashback credit card?

If you’re looking to earn some rewards while spending, a cashback credit card can give you money back on certain types of spending or rewards that can be converted into money-off vouchers at particular retailers.

However, it’s always important to value the potential rewards against the debt you will need to pay off at the end of each month. Any interest charges you run up could outweigh the value of the rewards, meaning a cashback credit card is generally only a good idea if you can pay off your debt at the end of each month.

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Key things to consider when choosing a credit card

Once you’ve decided which type of credit card is right for you, you’ll still have to pick the right one from potentially hundreds of different suppliers. When making your decision, it’s also important to bear in mind the following:

Credit card interest rates

Unless you’ve chosen a 0% interest credit card, you’ll want to know what the interest rate is. Some credit card companies will offer low-interest rates to lull customers in which then may dramatically increase once a fixed amount of time has passed, typically 12 to 18 months. If you’re intending to use the card for an extended period of time, be sure you’re ok with the new interest rate you’ll be given once the offer expires.

Minimum payments

If you can’t pay off the entire balance of your credit card each month, you’ll want to know how much your provider expects you to pay. This will either be a fixed agreed amount each month or a percentage of the total amount paid. One way is not necessarily better than the other, so you’ll want to do the maths to work out which way would work best.

Sign-up bonus

Alongside offers such as cashback and 0% interest, credit card providers may also offer you a sign-up bonus if you choose to apply for a credit card with them.

Similar to reward offers though, you’ll want to ensure that any of the other charges don’t outweigh the value of the bonus.

Some providers may also offer you a bonus for using your card, such as if you spend a certain amount in a given month. While these can be helpful, they can encourage you to spend money on items you may not have done previously just so you can get the bonus. Only consider these types of bonuses if you were intending to spend that amount of money regardless.

Annual fees

Be sure to also check if your credit card comes with an annual fee. These are usually to help cover the costs to allow you to enjoy all the extra rewards that may come with the card. Of course, if it has an annual fee and you feel you aren’t getting anything extra as a result, then it may be worth looking elsewhere.

For more information on managing your finances, check out our money section.

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