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• A to Z of Credit Cards

Credit cards can be a very cost effective way of borrowing over the short term, but sadly many people rack up expensive debt on their plastic and then struggle to pay it off.

This need not be the case if you take the trouble to understand how credit cards work and therefore be able to make the most of your cards.

So how do you choose a suitable card?

The first thing to do is decide what type of repayer you are::

• If you always pay off your entire balance every month and have a clear credit record, you should try to obtain a 0 per cent credit card deal, ideally with a reward scheme as well.  Rewards can be in the form of cash back, airmiles and point schemes. Cash back cards refund you with a percentage of your spending at the end of the year and some are more generous than others, so check the small print.
• If you do not always pay off the entire balance, your primary concern should be the cost of borrowing, as this will vastly outweigh any potential rewards on offer. So look at what the APR is on purchases, balance transfers and cash withdrawals.

 

On 0 per cent balance transfers remember that:

• the amount you can transfer to a 0 per cent deal may be limited (providers are reining back in this area)
• the majority of card issuers now charge a fee for balance transfers of typically 2- 3 per cent of the amount transferred.

Your acceptance or otherwise for a credit card deal will depend to a large extent on your creditworthiness which card companies score based on certain criteria.

If you’re in well paid employment, own your own property, have lived there for several years and have no blemishes on your credit record, you are likely to be regarded as highly credit worthy. 

However, if you have a poor history of repaying debt, you may well be rejected or be asked to pay a higher rate. Credit card providers are increasingly offering a range of card propositions to cater for people with different credit ratings.

Tips

The interest rates quoted in advertisements will often be limited to individuals with good credit ratings.  Also be aware that every time you apply for a card, you will leave a footprint with the credit reference agencies such as Experian and Equifax - even if the application is unsuccessful.

Generally speaking, it’s not a good idea to apply for lots of cards in a short space of time, as doing so may jeopardise future applications for credit because providers will think you are over indebted already.

If you can't obtain a 0 per cent deal, go for a card with a low 'lifetime' rate - namely, one which has a consistently competitive rate over the long term.