With a greater choice of credit cards available than ever before, it can be difficult to determine which one is best for you. Some credit cards are best suited to managing existing debts more effectively, while others are ideal for everyday purchases. The options which you have available to you will depend largely on your credit score. If you have managed to pay off your debts on time in the past, then you should have a better credit score than someone who has never borrowed any money before or has defaulted on payments in the past. The following takes a look at some of the common benefits offered by different types of credit card.
Cashback credit cards allow you to earn a small amount of money when you use them. While some of the best deals offer introductory rates of 5% or even higher, regular cashback rates are usually between 0.5 and 2%. Some cashback cards have a tiered system, whereby you will earn more when using your card at specific places. Some may also impose an annual limit on how much you can earn. Other cards provide a low set cashback rate which applies to purchases made anywhere.
Rewards & Loyalty Points
Unlike cashback credit cards, reward and loyalty point schemes only allow you to take advantage of a specific range of discounts and promotions. However, these can work out a lot more useful to those who tend to shop at specific outlets. For example, airline credit cards offer discounts on flights and other travel-related expenses, while getting a credit card from a major department store or supermarket chain will typically enable you to access exclusive promotions and discounts through those particular outlets.
The vast majority of credit cards provide you with an interest-free period on all purchases made, regardless of where you make them. This is not to be confused with 0% purchase or balance transfer deals which are typically only available for a limited time from opening the account. Most credit cards are effectively short-term loans at their most basic level, allowing you to buy something and pay for it later. As long as you pay off the amount spent during the previous billing period in full once the next bill comes in, you shouldn’t have to pay any interest. This interest-free period is typically one month, although it can be as long as 59 days.
Interest-Free Balance Transfers
Interest-free balance transfers provide the number one way to deal with smaller debts. If you have debts running into a few thousand pounds, you will likely be paying a lot in interest every month. A balance transfer deal allows you to transfer one or more debts from high-interest sources, such as other credit cards, personal loans or current account overdrafts for a one-time fee. This fee is typically around 2-3 percent. Some balance transfer credit cards give you as long as 30 months to pay off the debt without paying a penny in interest.
Many higher-end credit cards come with an introductory interest-free purchase period whereby you can spend as much as you want within your credit limit on purchases and pay off the debt over a period of time without paying any interest. If you want to buy something expensive, this allows you to pay for it at a later date without having to pay any extra for borrowing the money. The best cards offer interest-free periods for up to six or nine months, although you will usually need a very good credit rating to be able to get one.
Bundled Insurance Policies
As with packaged current accounts, some credit cards come with bundled additional features such as travel insurance. While this might work out economical for certain consumers, it is important to be wary of these bundled deals, since they often work out more expensive than the alternatives. Do not pay too much heed to things like promises of ‘free’ travel insurance or emergency breakdown cover, since credit cards which come with these features charge annual fees just for using them. Be sure to compare any included insurance features with those of separate policies.