How To Choose A Credit Card

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.

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