Credit cards can be a convenient way to pay for goods and services, whether at the supermarket checkout or over the internet. You can also use a credit card when you are travelling abroad. If you pick the right credit card, you can borrow money for free. However, select the wrong card and you could end up in serious debt. Our guide will tell you all you need to know.
All credit cards work like a short term loan. When you pay for your holiday or new dishwasher with a credit card, you essentially borrow the money from the card issuer. You then settle the debt when you receive your monthly statement. You can either clear the debt in full, in which case you will usually pay no interest and the loan is free. Or you can pay off the balance in instalments to spread the cost. You would then normally be charged interest – and the rate could be as much as 19% or even higher.
Credit card deals
There are hundreds of offers on the market, but all credit cards fall into just six broad categories. The right card for you depends largely on your spending habits and your attitude to debt.
People who regularly spend on their credit card should look for a good deal on purchases. Some cards charge 0% on purchases for a limited period, sometimes 12 months or more. So your card can work like an interest-free loan for this period.
Balance transfer credit cards are ideally suited for consumers who have run up debts on one or more cards at a high rate of interest. You can simply switch your outstanding balance to a cheaper balance transfer deal and save money on your debt repayments. Again, some card issuers charge zero interest on balance transfers for a year or more, though you usually have to pay a balance transfer fee of between 2% and 3% of the amount transferred.
Some people do not want the hassle of regularly switching their credit cards to chase the best deal. Where this is the case, a low rate credit card could be the answer. There is no 0% deal on offer, but a low rate card will charge a competitive rate of interest for life.
If you pay off your balance in full every month, the interest rate is not important because you do not need to borrow money on your credit card. Look instead for a card that comes with something extra, such as cashback credit cards or reward points when you spend.
Major credit cards are accepted around the world, but the cost of using a card abroad can vary dramatically as issuers tend to increase charges for foreign transactions. Anyone who travels overseas regularly should therefore seek out a card that charges low or no foreign usage fees.
Card issuers save the best deals for people with a perfect credit history. So if you have run into trouble with debts in the past, you could be turned down for credit. But some cards are aimed at people with a low credit score. The interest rates tend to be very high, but if you use the card responsibly it can help you increase your score.
Pros and cons of credit cards
Credit cards are popular – and for good reason. They are a flexible form of payment, particularly for impulse purchases and online shopping. They also offer consumer protection. If you buy something that costs between £100 and £60,260 with a credit card and it turns out to be faulty or the company goes bust, you can seek redress from the card issuer.
But you should choose your card with care. There is little point in a balance transfer card, for example, if you want to go on a spending spree. You should also stay within your credit limit and always pay off as much as you can afford each month. If you pay only the minimum amount, it could take years to clear your debt and cost hundreds or even thousands of pounds in interest.
Find the right credit card
With so many different credit card deals on the market, consumers can often feel overwhelmed. But MoneySupermarket's free independent comparison service makes it quick and easy to find the right credit card. Whether you want a 0% deal on purchases or a card to take on holiday, we can compare the top deals in a matter of seconds.