what credit card is the best for me?

Before getting my first credit card I was under the impression that they all are the same. Since, I have learnt that there is a lot of different options available out there.

Today I want to discuss the different credit card options available. It took me a while myself to realise what are all the options and how to best utilise these.

Some credit cards are best used in a specific circumstance. I will try to explain these options below so you understand what card ticks the most boxes for you right now.

I can think of total of six different credit card types. And so, I will go over all of these and cover their pros and how best to use each different type.

If you aren’t sure you actually need a credit card to start with – this article could give you more insight into benefits you can get from a credit cards.

reward credit card

Reward credit cards are the ones that got me hooked up. I knew I could get something back for the money I’m spending. At the same time, these were the only ones I knew off at the time.

There are 3 main types of reward credit cards – cashback, reward points and air miles. It is hard to say which type is better than the other. It will all depend on how you use the rewards you get. For me for example, I rarely fly with British Airways or likes and as such the air miles wouldn’t make much sense to me. I do have both other types however.

There are few things to keep in mind when considering the rewards credit card. These normally come with higher annual interest rates. As well as, these often require you to have stronger credit score to start with. 

I would also encourage you to read the small print on these. My credit card for example says – if I miss a single monthly payment my whole annual cashback would be cancelled. This could end up being quite a costly mistake.

credit history building cards

If your credit score isn’t strong enough to get a reward credit card it isn’t the end of the road. There are ways you can build your credit score over time. That’s where credit building cards come in to play.

If your credit score is low, this signals for lenders that you are a higher risk individual. It takes time for you to prove them wrong. Using credit building cards can really help.

These cards aren’t perfect though. They normally come with a lower credit limit. The other thing to keep in mind, the interest rates on these are extremely high.

I would encourage you to only spend very little amount on these cards. However, make sure you do it regularly. You should try to limit your spendings to roughly 25% of your total credit limit. This is the best way to start improving your credit score.

If you do the above you will quickly start seeing the results. By that I mean – the credit card offers you start getting will become a lot more interesting real quick. However, I wouldn’t necessarily grab the first reward credit card available to you as these will be far off the perfect rewards you’re looking for. Give yourself a bit of time to build up your credit score first.

travel credit card

As it says on the tin, these cards are made to make your travel cheaper. If you ever been overseas and used your normal credit or debit card you probably spotted that there are fees to pay. Travel credit cards help you avoid that.

Many standard cards charge roughly 3% on top of all the money you spend. That can quickly add up to a larger sum. With travel credit cards you don’t have to pay these fees normally. Before you apply for a card, have a read about any fees you might have to pay. Small print is what matters here.

On top of the above, travel credit cards normally offer a good conversion rate. Most of the time they are spot rates on the market. This will help you be sure that you are paying the best possible price.

There are some things to keep in mind if you have a travel credit card. Firstly, if you use these in the UK you might be losing out on potential rewards. Secondly, these come with high interest rates you could be charged. However, you don’t have to worry about this if you pay off your balance monthly.

purchase credit card

Are you looking to purchase an expensive item but are slightly short on cash? There is a credit card that can help you with that.

Purchase credit cards allow you to buy an item without a need to pay interest for a period of time. You can pay back the amount in monthly instalments without any interest at all.

Make sure you understand the terms of these cards first though. Quite often they have a set of requirements in terms of how money has to be paid back. You have to meet specific timelines and pay specific amounts on these dates.

If for whatever reason you can’t meet the requirements above these credit cards can become really expensive. The interest rate charged on these are fairly high. Make sure you have a plan of how to pay off the balance of this card within the time specified in terms and conditions.

These credit cards are normally available to people with a fairly strong credit score. I wouldn’t recommend you applying for one if you know your credit score isn’t strong enough.

The other thing to consider – do you actually need an item you can’t afford in the first place?

balance transfer credit card

I hope I never need to use one of these cards however it is great to know these are available. Balance transfer credit cards can be a really powerful tool for people looking to get out of debt.

If you have credit cards with balance that you aren’t able to pay out immediately balance transfer card is something I would consider. If any of your credit cards has balance left on monthly basis you will be paying really high interest rates.

Balance transfer credit card allows you to move all of that dept into this card. You don’t get charged interest rates or they are very low. This benefit is there for a certain period of time. You should have a plan of how to get this down to 0 in order to avoid paying high interest on this card.

I will give you an example of how to best use this card. Let’s imagine you have a balance of £1,000 that you aren’t able to pay off. And let’s imagine that your normal credit card charges you 25% per annum. That’s £250 every year.

If you take a 0% balance transfer credit card that offers 24 months lending period – that’s half of your debt paid off. The interest you would’ve had to pay in these two years on your normal card would be equal to £500. Instead, you could put this money towards reducing your debt.

I would encourage you to have a plan of how to pay off the credit balance as soon as possible. There is no point of moving credit between cards and not looking for ways to settle this.

One other thing to keep in mind, some of these cards might come with a transfer fee. I would suggest you do some maths and make sure that the fee isn’t greater than the saving you are making.

money transfer credit card

These cards work as a tool that allows you to borrow money. You can transfer cash into your normal bank account – mostly for a fee. 

There is normally at 0% interest period with these cards. Once you’ve borrowed the money you have a certain period of time to pay it off. One way people frequently use this is to cover the overdraft on their current account.

Once again, this only makes sense if you have a plan of how to pay it off. Once the 0% interest period ends you will be charged with hefty interest. If used cleverly however, this card can help you save a lot and get rid of your debt really quickly.

summary

There are many different credit cards available. All of them have their own purpose. You should understand your personal circumstance and decide which one will do a better job for you.

My top tip is to try to use no more than 25% of your credit limit. This will make sure that your credit score is moving in the right direction.

If for one reason or another you get into debt problems hopefully the above helps you understand that there are ways to get out of it. You should use these tools cleverly and make sure you have a plan to get rid of the debt.

Accumulating debt and moving it into new cards is not going to solve your problems.