There are many different types of credit card now available on the market – not to mention a multitude of providers. Interest rates vary greatly from card to card, and some are not available to all. So what type of card should you be looking for? We've detailed a breakdown of the common types on offer to help you choose what's best for you.
Types of Credit Card
All cards offer the same basic functionality, but they are marketed at consumers from a number of different angles:
Original type and available to all over the age of 18 (assuming you pass the credit checks). Generally, you get interest free lending for a period (around 30 days, but varies), and assuming you clear the balance off in that time, you pay no extra than what you've spent originally. Alternatively you can pay the minimum amount each month (around 3% of the balance), whilst interest accrues on the remaining monies owed.
Specifically targeted at those looking to improve their credit rating. You may be alarmed to find that the interest rates are around 30%, but there is a practical use for these cards; basically you use them to buy everyday things such as shopping and groceries, then completely pay them off each month with the money you would have used, but shrewdly stored away until the end of the month. This is a great way to build your credit score if you have the discipline, with monthly plus points being added every time you make another successful repayment.
Those on higher incomes and with a good credit standing should apply for a Gold or Platinum card which offer lower interest rates than standard cards, and often include freebies such as basic travel insurance.
Balance Transfer Cards
These are targeted at those looking to consolidate several debts into one. Generally, you get a zero charge period on the transfers for an introductory period (12 months or so), then resume paying interest after the honeymoon period is over. Any new purchases you make on the card are likely to start accruing interest straight away, regardless of if the introductory period for balance transfers is still running. An alternative option to this type of card is a consolidation loan, which will give you lower APR rates.
Interest Free Purchase Cards
A good option for anyone needing a short term loan. Interest free cards, offer 0% APR on purchases for an introductory period (up to 18 months), meaning you can get a temporary loan for free, assuming you save the money to clear the debt at the end of the initial period. After that period you pay interest at the card's standard rate, which can be quite high though.
Quite simply, every-time you spend on this card you get a small percentage of that purchase credited back to you as cash. If you have the discipline, these are a good tool for everyday groceries, with you simply paying off the card at the end of each month.
Very similar to cashback cards, but you received rewards (such as air-miles), instead of cash, each time you spend.
A bit more niche and new to the market than all of the above, providers of these cards donate to charity, rather than giving rewards or cashback. If you're feeling altruistic and considering such a card, beware of the high APR charges some carry.
The card provider has affinity links with various stores and businesses, and as a result you get discounts and offers for being a customer of this type of credit card.
Perhaps not really considered a credit card as there is no amount available for you to borrow – you simply top up the card like mobile phone credit. Great for travelling and giving to the kids etc., so you don't need to risk losing more than you need due to theft. If you're struggling to get a regular card, some pre-paid providers now offer cards which build up your credit rating. This works by you agreeing to a small loaned amount of around £60, to be pre-loaded onto the card, which you pay back to the provider with a fee of about £5 per month. Then, providing you have not missed any payments, at the end of a 12 month period, the details are recorded on your credit history.Image: © Cafebeanz Company | Dreamstime.com