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How to Choose the Best Credit Cards UK

Fiona Leake
Fiona Leake
  | Edited by Fiona Leake
Updated 4th February 2021

If you’re looking to get a credit card, we are here to help with our list of the best credit cards. Before diving into our list, let’s take a look at what credit cards are, how they work and some credit cards comparison. Read on for everything you need to know about credit cards.

What is a credit card?

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Credit cards are a way you can borrow money. You can use credit cards just as you would a normal debit card to buy the things you want. However, with a debit card, you are spending money that is directly debited from your account. Credit cards borrow money from your card provider. This ‘borrowed’ money builds up your balance. Your balance or debt on your credit card should be paid off in full at the end of each month or you’ll accrue interest.

How do credit cards work?

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A credit card is a tool through which you may borrow money. A company lends you money (debt) to spend. And you pay it back, plus a fee called interest. 

Credit cards may be useful but they are also dangerous. You will increase your debt. If you spend £100 on a credit card, that is £100 of debt. 

Credit cards work well if you understand how to use them properly. You should only use credit cards to borrow reasonably small amounts of money, anything from £100 up to £5,000. More than this and it might be cheaper for you to take out a loan as the interest will begin to mount up on a credit card.

We recommend that you pay off whatever you borrow each month in full. Otherwise, interest will start to accumulate on the remaining balance each month that you haven’t paid off. The more debt you build, the more interest you will pay. This can result in a vicious cycle where you are only managing to pay interest each month and none of your balance. 

Credit cards require a minimum payment every month if you have borrowed money. But where possible, try and pay more to clear your debt.

What is Interest? 

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Interest is the fee credit card companies charge you for borrowing money. It is calculated as a percentage of your balance (how much you’ve borrowed/spent). 

The average credit card interest rate in the UK is 20.77% per year. This will vary depending on your credit history and type of card. 

What are the different types of credit cards?

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0% Balance Transfer Credit Cards

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Balance transfer cards are for people who are struggling to pay off high-interest debt on an existing credit card. You can move the high-interest debt from your old card onto a new balance transfer card. These balance transfer cards often have 0% interest for the first 6 to 36 months. This means you can make a significant impact paying off your debt with no interest at all. 

Interested? Read our guide for more details on the best 0% balance transfer credit cards.

0% Purchase Credit Cards

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Both balance transfer and purchase cards give you a period of 0% interest on your balance. However, this interest-free period isn’t on transferred debt like it would be with a balance transfer card. With purchase cards the 0% interest will be on any spending you do using the card.

0% interest rate on purchases can last up to 24 months.

Want to know more? We have a guide on the best 0% purchase credit cards.

Cashback Credit Cards

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Cashback credit cards do what the name implies, give you cash back! The idea is that you’ll receive a certain percentage of what you spend back in cash. Some cards will offer a 1% or higher cashback rate which is considered very good. It adds up if you spend a lot on your credit card.

To find out more read our guide on the best cashback credit cards.

Rewards Credit Cards

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Rewards cards allow you to earn bonus points when spending. You may earn points for each pound you spend on your rewards card. These points can then be redeemed for vouchers, flights, hotels and more. If you get a card from a specific retailer, the points you earn can usually only be redeemed for vouchers at that shop. This is great if you are a frequent shopper there. 

You can also get more travel-based rewards credit cards that earn you miles for flights or hotels. 

For more information, please read our guide on the best credit cards for rewards.

Travel Credit Cards

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Transaction fees can mount up when you visit a foreign country and spend on your credit card. A foreign transaction fee gets added to your purchase when you use your credit card abroad. These fees can often reach highs of 3% on the cost of your purchase. Thankfully, travel credit cards can make these transaction fees disappear so you can happily spend on holiday. 

Going on holiday soon? Find out more in our guide about the best credit cards for travel.

Credit-building or Credit Cards for Bad Credit

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Credit-building cards are great if you have no credit history or bad credit history. These cards are on offer for individuals such as students who may have no credit history at all or for those who might have a bad credit rating. There is a catch: these credit-building cards have high-interest rates and don’t come with any 0% periods or rewards like many cards. However, if you need to build up credit, these cards can be worth it. 

Need to build up your credit history? Take a look at our guide on the best cards to build credit.

How do I know which credit card to apply for? 

The most important thing to consider when looking for a new credit card is what exactly you want to use it for. Credit cards have different features and benefits for different scenarios. 

For example, if you have a big purchase coming up, you might want to consider a 0% purchase credit card to avoid large interest fees. Perhaps you want a credit card for everyday spending? Then a rewards credit card might be suitable if you want to accrue points or maybe a cashback card to build up some spare cash.

You need to think about your current situation and which card features will benefit you the most.

How we picked the best UK credit cards

Our best credit cards are suggestions and you are free to choose whether or not to agree with our selection! 

We took the following into account when putting together this list:

  • Being the best at what it does - there’s no overall best credit card that suits everyone. That’s why we chose the best in each category, depending on your needs
  • Interest rates and fees - even if there is a 0% period on purchases, we like to make sure the representative APR is as low as possible. We also like to look at annual fees and avoid putting pricey cards on the list
  • Customer reviews - we like to look at what’s popular with the customers so we know the card is beneficial to real people
  • Rewards and perks - cards that go the extra mile to reward you with tickets, points or cashback will always make it into our list

Again, our best credit cards of 2020 are entirely subjective based on the above criteria, always weigh up the pros and cons before deciding. 

Do I need a credit card?

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Getting a credit card very much depends on your circumstances and any commitments you may have. However, there are many situations in which it makes sense to get one. You might be travelling soon and want to avoid fees, about to make a large purchase and don’t want to take out a loan, or you may want to earn rewards while you spend. 

Advantages of credit cards

Here are a few instances in which credit cards can be useful:

  • Boost your credit score - if you are looking to get a mortgage or borrow money for a new car, having a good credit score can certainly help your chances. If you regularly repay what you borrow on your credit card, you can build a really strong credit score which could help you out in the long run.
  • Borrow money quickly and sometimes cheaply - if you urgently need money for an unexpected purchase, credit cards can be handy. If you get a card with a long 0% interest on purchases period, you can save loads of money on interest. Just make sure you pay it back before the regular interest kicks in again!
  • Rewards and perks - if you like the sound of being rewarded for spending money then some credit cards can offer points and vouchers.
  • Fraud protection - notice any fraudulent charges on your credit card and all you have to do is report them to your lender and you won’t have to pay them. This isn’t always the case with debit cards so credit cards offer more protection.
  • Spread the cost - the cost of any large purchases can be spread out over time rather than one bulk payment. This is particularly useful when purchases are unexpected.
  • Extra payment protection - Under Section 75 of the Consumer Credit Act, credit card companies are jointly liable as the retailer when you make a purchase over £100. That means if you need a refund you have some extra protection. 

What are the disadvantages of credit cards?

There are some potential drawbacks to credit cards that you’ll want to consider. 

  • Building debt - if you are unable to pay back what you borrow quickly, you could end up accumulating debt with high interest to pay back. 
  • Credit score risk - by taking out a credit card you are putting your credit score at risk if you are unable to afford the repayments. If you can’t make the minimum credit card repayments you might find it harder to apply for credit in the future.
  • Fees and charges - some credit cards have annual fees and if you go over your credit limit spend or don’t make repayments, you could be hit with more charges.
  • Limitations - read your credit card agreement properly as there can be limitations on withdrawing cash or using your card abroad.

Tips on how to use your credit card effectively

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Credit cards can be beneficial when used properly. There are a few things you need to do in order to make the most out of your credit card. 

1. NEVER miss a payment 

Miss your monthly minimum payments and you’ll lose any benefits you may have had. Whether you had 0% purchases or certain rewards for using your card. On top of this, you’ll be charged a penalty and your credit score will take a hit. 

2. Set up a direct debit 

 Set up a direct debit for the minimum payment required each month, plus whatever more you can afford, so you know you’ll always be covered.

3. If you can, pay more than the minimum amount

If you can afford to, pay off your full credit card balance each month. You’ll avoid interest and debt mounting up. However, if you can’t afford to pay it in full, try to pay as much as you can, not just the minimum amount. You can clear your balance quicker this way whilst avoiding debt and high-interest. Your credit score will thank you for it!

4. Avoid too many credit card applications

If you apply for credit cards too often, you can harm your credit score. This ‘hard search’ leaves a mark on your credit report. Too many of these and it’s seen as a sign of poor finances and that you are in desperate need of money. This means future applications could be rejected. Time your applications right by only applying for a credit card when you really need one and only applying one at a time.

If you get rejected from your first application, don’t rush into applying for another card right away. Find out why you were rejected and what you can do to improve your chances.

5. Think carefully about rewards cards

Rewards cards can be expensive and you don’t want to be paying for something you don’t use. Pick a rewards card that fits in with your regular spending habits. For example, if you fly regularly, get one that gives you air miles. Or, if you shop somewhere every week, get a rewards credit card from that shop. You want to make sure that the rewards outweigh the high annual fees. 

6. Be careful using your credit card

Always check what hidden charges you might face when using your credit card. For example, many cards might charge for cash withdrawals or if you use it abroad. Avoid using your card for these things until you check if you’ll be charged. 

Credit cards and coronavirus

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Coronavirus has put a financial strain on many. If you have a credit card and are struggling to meet your minimum repayments, you may be eligible for help.

The Financial Conduct Authority (FCA) has introduced measures that allow you to request a freeze on credit card repayments for 6 months. However, you may still be charged interest in this period.
You have until the 31st March 2021 to request a freeze but make sure you agree with your lender before stopping repayments. This won’t leave a bad mark on your credit history either due to the exceptional circumstances.

If you can afford to keep paying, it’s best to do so as you will still be charged interest during this holiday period.

All payment holidays must end by 31st July 2021.

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