HOW TO CHOOSE A CREDIT CARD GUIDE |
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There is one basic
question you need to answer to help you decide which credit card is best for you.
And that question is 'Do you intend to pay off your credit card balance in full
each and every month?'
If the answer is
'no' (and for 50% of the population it is) then the most important factor is the
interest rate. If the answer is 'yes' then it is the other properties of the credit
card that are likely to be more important such as what is charged for foreign
currency transactions or cashback perks. But it's still important to make sure
the interest rate isn't too high as you never know what the future holds. You
may not be able to pay off your bill in future or you may even simply forget on
the odd occasion.
Let's look at the
factors you need to consider when choosing the right bit of plastic. These are
all presented in our Credit Card comparison table.
1. Interest
Rates
These days many
cards, particularly those of new entrants to the market, offer an introductory
rate of interest in order to attract new business. Many of these offer very good
value for money and they can be particularly useful as a means of paying down
debt more quickly.
But be careful.
Some of these offers just relate to any balance you transfer from another card
and not to any new purchases you make. While you're paying off the transferred
balance at the attractive rate of interest, your new purchase costs are merrily
racking up interest in the background at less attractive rates. Make sure you
know what applies to the card you are applying for. Ideally, you want a good introductory
rate and a competitive ongoing rate.
Watch out for statements
which only refer to the monthly interest rates as well. Something like 'rates
of 1.5% per month' on your statement may not sound like much but this is equivalent
to 19.6% per year! When comparing interest rates always use the APR (Annual Percentage
Rate). This allows you to make like-for-like comparisons and, by law, it has to
be published when companies tout for your business.
2. Interest
Free Period
One of the most
attractive qualities of a credit card is that they can offer you up to eight weeks'
interest-free credit, if you delay paying off your monthly balance until the last
moment. If you make substantial purchases on your cards and pay off your balance
promptly then a couple of week's difference in the interest free period may be
worth investigating.
3. Annual Fee
Annual fees on
credit cards are relics of the murky history of this part of the financial services
industry. Most of the newer, more competitive cards don't charge them. Avoid cards
that do.
4. Cash Withdrawls
As a general rule,
drawing out cash using your credit card represents very poor value for money with
charges of around 2% per month.
5.
Foreign Currency
Many of us like
credit cards for their ease and flexibility when travelling overseas. But credit
cards are generally quite an expensive way to pay in these circumstances with
charges and catches similar to those that apply to withdrawing cash. If you're
planning to flex your plastic when abroad it's advisable to check out the small
print, and your alternatives, in advance.
6. Loyalty Schemes
Loyalty schemes,
offering things such as air miles or cash back, are gaining in popularity. Although
research indicates that these are one of the most important factors we consider
in deciding which card to choose (after interest rates) the benefits are often
fairly marginal. In order to get these benefits it's best to only use your credit
card as an alternative to paying by another method.
7. Insurance
Some of the major
credit card companies offer free insurance on any goods over a certain amount
bought using their card. This can be a very useful service in some circumstances.
In addition some cards also offer free travel insurance.
8. Gold and
Platinum Cards
Whilst they might
look flash when produced from your wallet or purse at the supermarket, the benefits
offered by these cards are often pretty uninspiring. Usually you require a salary
over a certain limit in order to get one and they often entail an annual fee.
Look at the benefits and then look at the annual fee. If you think that a) you
need those benefits and b) the price offered looks reasonable, then feel free
to look flash.
Credit
card guide...
How to choose a credit card guide...
How to use a credit card guide...
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