Types of Credit Cards



As well as funding our daily outgoings, credit cards are used for all sorts of things – from collecting reward points, to helping rebuild a damaged credit rating.

Gone are the days where you would select a credit card based solely on interest rate and use it for a little shopping splurge every now and then – today’s credit card user is a savvy consumer with an ever-watchful eye on their personal finance.

Understanding their customers’ needs, credit companies now offer a range of credit cards for different purposes - our team of expert advisors are on hand to discuss your credit card needs and find the perfect one for you.

credit card bundle

Interest Free on Purchases

With the purpose of a credit card being to buy things - 0% interest purchase cards are the easiest to understand. They typically hold the 0% interest for an extended period (anything up to three years), allowing you to buy something now and pay for it later when you have the funds.

Be aware that once the interest-free period is up, you will be subject to a reasonably high interest rate, and if you haven’t cleared your debt by this point, it may cost you more than you intended.

If you were to make a big purchase now, with a definite plan in place to clear the balance during the zero-interest period, an interest free purchase card is ideal.

Pros

Cons

  • Gives immediate buying power now

  • Extended period to pay off large purchases

  • Simple to understand

  • Interest rate at end of 0% period can be high

  • Often expensive to use for withdrawing cash 

 

Zero Percent Balance Transfer

Designed to take your debt from one card provider and transfer it to another that’s offering you an extended period of 0%, a balance transfer card can be a lifeline – taking the bill from an existing card at a high interest rate, which is a struggle to pay back, and giving you the breathing room to settle the debt at a more reasonable pace.

Like the interest-free purchase cards, these are best used when you know exactly how you are going to pay off the balance before the interest-free period ends.

Note that though the balance is held at 0%, there is often a fee (usually 3% or 5%) for the initial transfer.

Pros

Cons

  • Can give instant temporary relief from an imposing credit card debt

  • Often a reasonable rate for additional purchases

  • Interest rate at end of 0% period can be high

  • Can perpetuate bad finance management

 

Credit Improvement

With a high interest rate and low credit limits, credit improvement cards are not a good option for those with reasonable credit scores.

For people looking to improve a damaged credit rating, however, these cards are a positive way to prove finance management to banks and other institutions - leading to a strong and healthy credit score moving forward.

Credit improvement cards must be used wisely – regular use with monthly payments of the entire balance are the best way to build that elusive credit score.

Call our expert advice team for help in improving your credit rating and finding a suitable credit improvement card for you.

Pros

Cons

  • Often offered to those with poor or struggling credit ratings

  • Good way to build financial standing

  • High interest rates

  • Can damage credit rating further without good money management

 

Rewards!

To entice you to their credit card above all others, a number of lenders have credit cards with reward schemes.

These range from simple cashback schemes – where you get 0.25% or 0.5% back from any purchases you make, to the classic ‘air miles’ cards which were extremely popular at the end of the last century.

The value you will get from a reward card simply comes down to how well you value their reward – those who never travel get little from air miles schemes, for example.

There are plenty to choose from, so ask our advisors for help in choosing the right one for you.

Pros

Cons

  • The rewards

  • A reasonably-rated card for general use

  • Only really valuable to people who make full use of the rewards

 

Low Interest

Finally, it seems like a catch-all card for general use is here! Many banks offer low interest credit cards to their customers, but be aware – the interest rate advertised may not be the rate you get.

While a large number of their customers will get the advertised rate, those will be the ones with the best credit rating going in. The lender will adjust their interest rate according to your credit scoring, so what may seem like the perfect rate on paper becomes something very different in reality.

Pros

Cons

  • Great interest rates for good customers

  • No non-essential extras

  • Rate you get might not be that advertised

  • Best for those with strong credit ratings

 

Pre-Paid

While not technically a credit card, a pre-paid card gives the user the ability to use a card in most situations without needing to have the required financial history and credit scoring of a normal credit card.

A pre-pay card is simply loaded with money you pay in advance and gives a simple way of using that money – for online purchases, other digital transactions or when travelling abroad.

Pros

Cons

  • Simple way to get the convenience of a credit card without jumping through the hoops

  • No actual credit or additional bonuses

  • Limited protection from theft or returns

 

Credit Card Constants

All credit cards are covered under section 75 of the Consumer Credit Act, which gives you a strong amount of protection should something be wrong with your purchase – even giving you somewhere to go, should the company that sold you the goods enter into liquidation.

Credit cards are a very positive way to improve your credit score, allowing you to build up a history which will help towards larger future credit, such as mortgages or car finance.

Should you lose your credit card, at home or abroad, most credit card companies will be quick to get a replacement to you.

For more advice and an analysis on which credit card would be best for you, call our advisors today to get impartial, obligation-free help!

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By Crispin Bateman

on Thursday 29 March 2018

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