The listings below are non-affiliated with us
Compare Credit Cards
What Are Credit Cards and How Do They Work?
Can I Get a Credit Card?
Types of Credit Card
Standard credit cards
Most standard credit cards will use one of three main payment providers or networks: Visa, MasterCard or American Express. These facilitate payments between banks and the shops, restaurants or other places where you use your credit card. Visa and MasterCard don’t actually provide the credit cards themselves – they simply provide the framework for the cards to be used. American Express, on the other hand, does issue its own cards as well as acting as the payment provider.
One of the first decisions when choosing a credit card is which payment provider you should choose. Visa and MasterCard are accepted just about everywhere – American Express is somewhat less commonly accepted. This is because American Express generally charges merchants more for this service than the other two options, so they might be more reluctant to accept payment using American Express for this reason. That said, due to this, American express credit cards tend to come with other incentives which make them more enticing, such as cashback or travel rewards.
Standard credit cards offer standard credit limits (of varying amounts).
Gold or platinum credit cards
If you have a good credit rating and high earnings then you may be able to apply for a gold or platinum credit card. These credit cards offer higher limits, lower interest payments and often include other perks or incentives for those who have built up a good financial history and have shown that they repay the money they owe. They may come with other offers such as free travel insurance.
Balance transfer credit cards
Balance transfer credit cards allow you to transfer the debt from one credit card provider to another to take advantage of a 0% interest deal for a given period of time. Usually, credit card providers will offer 0% interest for at least 3 months – 1 year, but you can also find deals on which no interest is charged for even longer – 2 years or more in some cases.
When you transfer an existing credit card debt to a balance transfer card from a different credit card provider, you will have to pay a balance transfer fee, which is usually around 1-4% of the debt that you wish to transfer. Even taking this payment into account, it can often work out much cheaper to transfer than it would be to keep the debt on the same credit card. Remember however, that the card will go back to a high level of interest once the 0% interest period is through, so these cards are usually only a good idea where you plan to repay the debt in full within the 0% interest period.
Interest free purchase credit cards
With a 0% purchase credit card you can pay for an item over a longer period of time and spread the cost without incurring any interest fees. Many of the best deals on the market will offer 0% interest on purchases for up to a year, or even for a longer period of time. These credit cards are a good idea if you want to make a big purchase close to the beginning to the term of the deal. That way, you can pay off the debt through the period of 0% interest on purchases in instalments. Again, remember to make sure that you pay off the debt within the 0% interest period, or you may be stung by high interest payments after the 0% period has elapsed.
Cashback & Reward credit cards
These credit cards offer cashback on purchases. One thing to remember is that these cards often have a higher than usual interest rate, so they are best to avoid unless you can afford to pay back the balance in full at the end of each month. Finding the right cashback or reward credit card for you will depend on your lifestyle and the kinds of things on which you usually spend your money.
Travel credit cards are ideal for those who travel a lot, either for work or for pleasure. These credit cards will offer low or no foreign transaction fees and will also often offer frequent flyer rewards or other incentives that are of interest to those who spend a lot of time abroad.
Bad credit & credit builder credit cards
If you have poor credit, these credit cards enable you to borrow money – though it is important to remember that the deals will not be as good and you will be borrowing money at a higher price than those with a good credit rating. You can build up your credit rating by making regular payments on a credit builder credit card over time.
These cards have to be topped up with money before they can be used to make any purchases. They don’t charge interest and offer the convenience of a credit card for those who have been refused credit, or who do not have a conventional credit card for another reason.
How Do I Choose the Right Type of Card?
- Check the APR (Annual Percentage Rate)
- Check the period of free credit
- Check how much you will be charged in interest
- Check when interest is charged
- Check how much you will be charged if you miss a monthly payment
- Check if there is an annual charge for the credit card
A credit card is a financial tool and should not be abused. But when treated sensibly, a credit card can be a sensible addition to anyone’s financial toolkit. Responsible borrowing can help give you flexibility in managing your money, and can help you to build your credit rating. Whether you are looking for your first credit card, or are much further down the line, Money Pug is here to help. By using our handy guides and comparison service, you can get the right credit card for you.
Credit Cards FAQs
- Credit cards enable consumers to buy now and pay later. They make it possible to purchase things online and in stores. A credit card will usually have an agreed credit limit. You will not be able to borrow more than this agreed amount without paying off some of the outstanding debt. Each month, you will be sent information by the card provider regarding the outstanding balance on the card and the minimum payment that you will have to make that month. Though you can choose to simply pay this minimum amount, it is important to remember that you may incur interest charges on the outstanding balance, though this will vary depending on the card you have chosen, as every credit card has different interest and fees.