How to choose the best credit card for you | Credit cards

Check your credit history

Before applying for a credit card, it is worth checking your credit record. Some providers may charge, but you can check your credit score for no fee using the statutory reports available from Experian or TransUnion. You can check your score with Equifax if you sign up for a free trial, but after 30 days it charges £14.95 a month. NatWest also offers a free credit score tool and you do not need to be a customer to use it.

Checking will help create a picture of how lenders will see you. They will assess your risk based on your history of borrowing and repaying. This will help them decide whether to offer you credit or not.

Checking your credit history is considered a “soft inquiry” and will not affect future applications as only you can see it on your record. Applying for credit, however, creates a “hard” check, which is recorded on your file.

Lots of hard checks can signal to lenders that you are high risk and could struggle to make repayments, are borrowing to get out of debt, or that other lenders have already rejected you.

If you have a history of missed or late payments, you are likely to be rejected when applying for credit.

On the other hand, if you have no credit history, you may also be turned down because there is no evidence that you are a good risk.

What is the card for?

Ask about what you are going to be using the card for. Do you plan to use it to make everyday purchases, or want to spread the cost of a bigger purchase such as a sofa or a holiday? This will affect which card is best.

If you are planning not to pay off the balance in full each month, you will probably have to pay interest on any outstanding sum. In that case, it is a good idea to pick a card with a low interest rate on purchases.

On the other hand, if you can pay the balance off in full and on time each month, you may want to look at a card offering incentives such as points or cashback.

Don’t leap in

It is important to explore different options before making a decision about your card, and comparison tools are a good place to start, says John Webb, a consumer expert at Experian.

“Using the eligibility checkers available on these sites will show you which cards you’re more likely to be accepted for before you apply, so it won’t affect your credit score,” he says. These comparison tools also allow you to check different interest rates and benefits.

“A credit builder card could help improve your credit score if you have a limited credit history; a reward card usually offers benefits like cashback or travel points; and a balance transfer card could help you consolidate and pay off existing debt at a lower interest rate,” Webb adds.

A credit builder is a type of card aimed at people who are new to borrowing or have a poor credit history. You are more likely to be accepted for a credit builder than a normal card.

They usually have a lower credit limit than regular cards, and interest rates can be higher, too. But they give you an opportunity to demonstrate responsible credit use over time. As long as you pay off the balance in full each month, your credit rating could improve within six months.

You might also have a better chance of getting approved for a credit card from your bank than a new provider if you have a history of using its services responsibly, so it is worth checking the rates and deals available.

Check the APR

When you apply for a credit card or personal loan, the lender will quote the interest as an APR, which stands for annual percentage rate. It is essentially the total cost of borrowing money over a 12-month period, shown as a percentage. It takes fees into account as well as interest. The rate should give you an idea of how much you will have to pay back on top of the money you want to borrow.

So, if you borrowed £500 with a 10% APR, you would repay £550 over a year – which may be just interest, or perhaps made up of an annual fee and interest.

Generally, the lower the APR, the cheaper it is to borrow. “It’s important to research [the APR] because a lower APR could save you money over time,” Webb says.

Usually, the APR quoted is described as representative. This means the advertised rate is given to at least 51% of people who are approved. However, the rate you are charged may be different depending on your credit score.

Check 0% credit

If you are hoping to spread the cost of a large purchase, a 0% interest-freeoffer on a credit card may help. This allows you to use the card and pay it back without paying interest on your balance. It is usually for a set period of time, and afterwards if you still have a sum to repay it will attract interest at the card’s standard rate.

If you know this date in advance, it is smart to plan ahead to clear your debt in time to avoid any extra charges. Martin Moore, a borrowing expert at NatWest, says: “Some people divide the cost of their purchases by the number of months remaining to ensure that the balance is cleared.”

A credit card with an interest-free period could be an effective way to streamline your existing outgoings if you are now paying off a card and face interest on your outstanding balance. It will mean “more of your payments go towards repaying the original amount borrowed, rather than interest”, Moore says.

Beware sign-up offers

Some lenders will offer enticing welcome offers for joining, such as a big lump sum of loyalty points or an extended interest-free period, but these tend to come with a catch. For Webb, these can be an important consideration but should not “be the only reason you choose a credit card”.

The catch could be conditions such as a minimum spend. For example, a lender may offer a higher rate of cashback or rewards points if you spend over a certain amount in the first few months – you need to be careful not to be drawn in to extra spending to meet the conditions.

All regulated lenders have a legal duty to provide certain pre-contract information, including details about the amount of credit, total charge, rate of interest and repayment details before you sign an agreement. Make sure you read these. If you are at all confused, speak to the lenders’ customer services before signing anything – they should be able to answer your questions.