Guide to finding the best credit card

Whether you already believe that plastic is fantastic, or you are looking to apply for a credit card for the first time, deciding which credit card is right for you can be difficult in a minefield of credit card balance transfers, varying rates and bad credit.

We understand the difficulties involved in choosing the best credit card for you and that's why easymoney.com has compiled an exclusive credit card guide to help you pick a card… but not just any card. So read on to be sure you're playing with a full deck.

Why do you need a credit card?

The simple answer is that you might not. Credit cards certainly have their uses, but they're not for everyone. The key to getting the most from your credit card is to treat it well.

It seems more and more UK credit card users are buying now and paying later. This is the massive advantage of the credit card. It gives you the flexibility to get what you want, when you want. Very often they are seen as plastic debt traps, and indeed this can be accurate if they are used without consideration. It takes self-control and discipline to use them with forethought and get the most out of your deal. However, if used correctly savings can be made as well as providing you with convenience and ease-of-use.

Which credit card is right for you?

Credit cards are not the only types of card that could be right for your needs. There are various options available on the market and it's important to make sure you choose the right one for you.

• Credit card - Lets you borrow money and pay it back in monthly payments. You generally determine the monthly payment, but there is usually an interest rate charged.
• Debit card - Normally linked to your current account it allows you to make quick and easy transactions.
• Charge card - You charge purchases to an account, which usually has to be paid off in full each month. There is also normally a membership fee.
• Store card - Easy to get but they restrict you to shopping with certain retailers and often have high rates of interest.
• Affinity/charity card - Money goes to a charity each time you spend.
• Cashback card - Pays you to spend on the card. However, if you do not pay off the balance in full each month the interest rate rockets.

What type of user are you?

Once you have decided that a credit card is right for you, you will be faced with an array of options that could leave you scratching your head wondering which one could possibly suit your needs.

However, the key to finding the best credit card for you is to not just think of what the credit card can offer, but also think about what you want from the credit card. To decide this you need to think about the type of user you are based on your spending and repayment habits. The last thing you want is to spend more than you have to. One tactic is to get a different credit card for each need, making the most of the benefits available while avoiding the traps.

So what type of user are you?

• You are a regular spender who will always clear your balance each month.

If you always clear your balance at the end of the month, the interest rate charged is of no importance, unless there's no interest-free period and you will pay regardless of how quickly you clear your balance. Many cards include an interest-free period of up to 59 days from the date of transaction.

If you fit in this category you should choose a card with no annual fee and one that allows you to earn rewards or cash back. These schemes vary so find one that suits you. To guarantee you'll clear your outstanding balance each month, consider a direct debit payment scheme.

• You are a regular spender who will usually clear your balance each month.

If you generally clear your balance, but not always, it makes sense to choose a low standard rate - that way interest rate charges are never too extreme. Again, choose no annual fee and opt for a reward scheme that suits your needs.

• You will rarely or never clear your balance each month.

If you're rarely going to clear your balance it is vital to choose a card with either an ultra low standard rate or be willing to shop around once an introductory rate has passed. If you have a debt on your existing card you should switch to a card with a low balance transfer rate. Remember if you choose a low introductory rate you will need to make the switch once that period expires to a credit card with a low standard rate.

• You want to clear an existing debt.

If you are carrying a debt you need to think carefully about your ability to make repayments. Simply paying off the minimum amount each month will not assist you in clearing that debt, as you need to pay off capital as well as the interest. Consequently, you need to secure a card that will aid you in saving money. Switching to a card with a 0% introductory interest rate can help your cause as this means all payments during that period will reduce your overall debt. You can even switch cards when this period expires to continually avoid interest charges. If you are unlikely to make the switch then picking a card with a low standard rate for the lifetime of the card makes sense.

• You have poor credit history or difficult circumstances.

Some credit card issuers now offer 'bad credit' credit cards. These are ideal if you have no previous credit history, or bad credit. You might not be offered the typical rate, but this type of card can help you to rebuild your credit rating.

Should you consolidate your debts?

If you have bad or adverse credit it can be tempting to consider consolidating all your debts into one. The theory is simple - you put all your debts on to one card and therefore reduce the amount of interest you have to pay. However, many people will spend more money once that initial debt has been removed and add to their problem.

Adverse credit cards or 'bad credit' credit cards can help you rebuild your credit. Make sure you think carefully about your ability to make your repayments before consolidating debts or moving to a 'bad credit' credit card.

What happens when things go wrong?

If you are refused a credit card and are concerned about your credit card rating you can apply to a credit reference agency to see your record.

You can view your credit file with Equifax for £14.95.

Free advice is available from the Citizen's Advice Bureau, the National Debtline on 0808 808 4000 or the Consumer Credit Counselling Service (CCCS) on 0800 138 1111.

Specialised credit cards

There are numerous credit card options on the market that may specifically meet your needs. These include:

• Airline credit cards - You can earn frequent flyer miles as you spend.
• Business credit cards - These are cards designed specifically for small business owners and corporate executives. Some of their advantages can include flexible credit limits, because you could spend more money at different times of the year, and extending cash flow.
• Cashback credit cards - These allow you to earn cashback on purchases. These usually require a good or excellent credit rating. It is the most straightforward reward program as you earn money back the more you spend.
• Loyalty/Rewards credit cards - These pay you points for purchases and can save you money on a specific need, for example on petrol purchases.
• Student credit cards - Depending on the issuer these can offer specific rewards schemes targeted at students or a chance to build your credit history.

What should you look out for?

The most important thing to look out for is the annual percentage rate - also known as the APR. This is the figure that gives you an idea of the cost of credit, taking into account interest rates and other charges, such as any annual fee and the charge for borrowing cash. With no annual fee the APR is the monthly fee compounded over twelve months. It is NOT the monthly fee multiplied by twelve because that does not take into account interest. You pay interest on your interest.

Additionally, you should look out for other fees. These should be explained in the summary box, otherwise known as the honesty box, in which credit card issuers should list all their fees in an easy-to-understand format. Some fees to look out for are:

• Application fee - Is there a charge for opening the account?
• Annual fee/service charge - Is there a monthly or annual service charge and what do you get in return for this, for example does the issuer provide an online service or helpline funded by these charges?
• ATM withdrawal fees - Generally it is best to avoid withdrawing money using your credit card as you will usually be hit with a fee or a percentage of the amount withdrawn for using the facility.
• Balance transfer fees - Does the card issuer charge a fee for balance transfers? Many now do to combat cardholders who switch when their existing low interest deal expires.
• Cheque advance fees - What is the charge when you buy goods using a credit card cheque?
• Overseas transactions - How much does it cost you to use your card overseas? Credit cards usually have extra charges for overseas use, but these can vary. Credit card exchange rates are based on Visa and MasterCard wholesale rates with a loading percentage. Rates could vary depending on the country you use your card in.
• Card replacement - If your card is stolen/damaged how much will it cost to replace it? Regular travellers should particularly consider this charge.

Remember that credit card companies exist to make profits. If you don't pay your balance in full you are likely to be stung by charges as the cost of the transaction is backdated to the day of purchase. Chances are that that if you do carry over on your monthly payments, balances at promotional rates will be cleared before standard rates, which means you accumulate a higher rate of interest. Also if you transfer your balance from one card to another you could be tempted by a better APR. However, as soon as you pay out more money you will be charged at the standard rate. Beware of these charges and check the summary box when making your credit card application to ensure you know what you're dealing with.

Making your card work for you

There are a number of ways to cut your costs and make sure you get the most from your credit card deal:

• Introductory rates - There's no reason why you can't take advantage of introductory rates and float from card to card. However, you will need to apply for your next card about six weeks before your previous deal runs out. Companies do monitor your switches so a lack of loyalty could leave you with fewer options. Look out for balance transfer fees as they may outweigh any benefit you'd receive from switching your balance to a lower rate.
• Low standard rates - If you don't want to move around make the most of low lifetime rates which can sometimes be as little as 4-5% APR. Make sure any introductory rate applies over the length of the deal and consider using different cards for different purposes.
• Avoid the bare minimum - Pay back as much as you can when you can to avoid your interest building up.
• Credit rating - Be careful which cards you apply for. The more you apply for and fail to get, the higher your credit score.

What benefits are available?

There are numerous advantages to capitalise on when using a credit card. These include:

• Gold and Platinum cards - These offer extra benefits and perks such as free travel insurance, but you will usually need to earn above a certain threshold to secure one.
• Travelling - Some credit card providers now offer specific rates for travellers and overseas transaction fees can range from 0-2.75%.
• Insurance - Some issuers will offer free credit card insurance, such as price protection insurance, which allows you to return goods if you find them cheaper elsewhere. Travel accident insurance will cover certain instances of personal injury.

How do I make an application?

If you have decided that a credit card is right for you then the next thing to do is secure the best deal available. To do this use the price comparison tool at easymoney.com to compare more than 300 credit cards in seconds. This will save you time and money by comparing a wide range of providers so you can find the cheapest credit card deal to suit your needs.