Which credit card fits you best?

24th June 2010  

The convenience and status that credit cards afford us mean they’re just about everywhere these days. In the UK, there are 20 million more credit cards in circulation than there are people in the country. In the USA 14% of Americans have more than 10 credit cards. There are companies persuading you to visit their websites to compare credit cards advertising on TV.

There’s a reason for this. In an increasingly crowded media marketplace, the marketers for the big brands see that rectangle of plastic that we keep so close to our hearts as prime selling space for brand building offers, loyalty schemes and rewards programs.

What better way to encourage loyalty to XYZ Supermarket chain than to give you a 0% interest period on the cost of your shopping if you shop with them for 6 months?

But how do the public find out about all these cards, let alone differentiate between the bewildering array of benefits, rewards, limited time offers, and of course, charges?

The answer these days is of course the internet. All this information can fairly easily be distilled down to numbers, which means all you need to compare credit cards is a PC and the internet, and a little help from an independent credit card comparison website.

It’s easy to be dazzled by head turning offers of cash back and interest free periods; what information do you need to know to compare credit cards and really arrive at the best deal for you.

You need to start by having a really honest look at your income and financial profile, your spending habits and your history with credit cards and loans. Do you understand your credit score and your credit history and how that can effect what kind of cards you’re eligible for? If you’re looking for a low overall rate of interest, does your credit score support that kind of card? (Some tips on improving your credit rating).

The charges and the interest rates on credit cards mean that it’s not the cheapest way of borrowing money and so if you aren’t totally confident that you can settle the credit card account at the end of the month, don’t just look at the rewards on offer.

Once you’re happy you know your financial profile, the key information you need to really compare credit cards is:-

  • Is there an annual fee, what is it, and is it factored into the quoted APR?
  • As well as looking at any promotional interest rates, what’s the standard rate of interest on the card which you’ll be paying outside any promotional period, or if you don’t stick to the terms and conditions?
  • What penalties are there in the small print if you see a better offer in the marketplace if you compare credit cards again, and want to move to a better deal during a promotion like a 0% balance transfer period?
  • What are the penalties or charges if you accidentally go over your credit limit or you’re late making a monthly repayment? (With most cards you’ll immediately lose the rights to any rewards or benefits if you don’t stick rigidly to the terms and conditions and that means no slip ups or late payments).
  • If there’s rewards or cash back offered with the card, what’s your likely benefit per annum related to your likely available spend on the card, and what are the costs you’ll have to incur in charges and fees to get those rewards? Do the sums add up?

The fact that you can now compare credit cards online means there’s never been more competition in the market place, and that’s always good for the consumer. But to get the very best from the wide variety of offers available, you need to be realistic about your spending habits and be disciplined in your decision making about the kind of credit card that’s going to work for you.

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