Compare Credit Cards

Compare Credit Cards

Credit cards can offer a quick, easy and straightforward way to pay for things. They can be used as a handy alternative to cash or cheques and can also be used to make purchases at a distance, whether online or over the phone. They also provide a convenient way to borrow money but should always be used responsibly.

What are credit cards?

Credit cards are small plastic cards that allow you to access a pre-arranged line of credit. In essence you borrow money to make a payment on your credit card. There will be a limit, known as your credit limit, on the amount you are allowed to borrow on your credit card. The majority of cards have interest free periods available on purchases. If you pay the balance in full each month, you will usually pay no interest on the account.

What are the benefits?

There are many benefits to using a credit card. These include:

Convenience

Most people find it more convenient to carry a credit card rather than large amounts of cash or a chequebook. They are also easy to use online, over the phone or by mail order.

Purchase protection

Section 75 of the 1974 Consumer Credit Act gives you certain protections if you make a purchase between £100 and £30,000 on a credit card. If goods are faulty or do not turn up – perhaps because the suppliers have gone bust – you can claim the costs back from your credit card provider. For purchases under £100 you may be able to make a chargeback claim. Unlike the Consumer Credit Act, chargeback is not a legal obligation on the part of your card provider, but it is part of a voluntary scheme, which participating banks and credit card providers subscribe to.

Fraud protection

So long as you have taken reasonable precautions (such as protecting your PIN), you will not usually be liable for any fraudulent transactions made on your credit card account.

Free credit

As long as you pay back your balance in full each month you will not usually have to pay any interest or charges on your account. Some cards do have set annual fees however and if you use your credit card to withdraw cash from an ATM (known as a 'cash advance') you will usually be charged interest from the day you make the withdrawal until you have paid it off.

Bonuses and rewards

Many credit cards offer additional benefits such as Air Miles, points-based reward schemes and cashback. Some premium cards may also offer extras such as limited travel insurance and even breakdown cover.

Worldwide payments

Credit cards are recognised and accepted all around the world. This means you can use them to pay for goods and services when buying from abroad online or in person if you are on holiday or otherwise travelling overseas.

What are the disadvantages?

One of the chief advantages of a credit card – the fact that it allows you easy access to a pre-arranged line of credit – can also be the main disadvantage. When used sensibly, credit cards can provide a cheap (or free) means of short-term borrowing. If you do not or cannot pay off your balance however, the costs can soon add up. Some people find themselves building up debts they cannot easily manage on their credit cards.

Credit cards are not generally designed for long-term borrowing. Even cheap credit cards with relatively low interest rates can cost more than other sources of credit such as personal loans over a longer time period. The rates for cash advances are generally very expensive.

How do I choose the best card?

There are various things to consider when you compare credit cards. The interest rate that you pay on your balance can be very important but it also depends on your personal circumstances and how you use your card. If you generally have some outstanding balance each month then cheap credit cards with relatively low interest rates may be the best option.

If you pay off your balance in full each month and take advantage of the interest-free period, the interest rate may actually be far less important than other factors. You should be aware that situations can change however, and that you may encounter unexpected expenses. You may start off intending to pay off your balance in full every month but there may be times when this doesn't happen for one reason or another. If this is the case, your interest rate will affect the amount of interest that is applied to any outstanding balance.

Cards with rewards schemes can also be particularly beneficial for customers who tend to pay off their balances in full. These cards will often tend to have higher interest rates and so the value of any rewards or the amount of cashback earned has to be set against the extra interest you will have to pay if you do have outstanding balances each month.

As well as the regular monthly interest-free period, many cards will have introductory offers of low interest rates on purchases that last for a set period of time. If, for example, you had a 0% introductory offer for 6 months you would not pay any interest on purchases made on the card in that time. If you have not paid off the balance by the end of the introductory offer period however, the standard interest rate would apply to any money still owed.

The same goes for balance transfers. Many cards will allow you to transfer a balance from another existing credit card account – essentially the new card takes on the debt that you owe the other provider. There will often be an introductory or promotional offer on the new card that means you will pay a lower or zero interest rate for a set time. At the end of this time it would again revert to the standard interest rate if any balance remains.