Finding the best credit card
Credit cards don't have to have a negative impact on your financial life. If you choose the right credit card for your needs and for your lifestyle, you could find that you end up in a better position than when you started. All you need to do is exercise a measure of self control when you are spending the money lent to you. As long as you stay within your budget and make sure that you are able to afford repayments, you will strengthen your financial life.
One of the main things that you must do in order to make the most of a credit card and avoid overpaying for the money you borrow, is try to pay off the outstanding debt at the end of each month. By doing this you will avoid being hit by high interest rates and you are more likely to improve your credit rating.
In This Guide:
How much interest will you be paying?
Obviously the main source of financial strain from credit cards comes from the cost of taking out the loan. This cost is referred to as interest. Interest comes in varying forms and can be charged in many different ways. As a result of this it can often be difficult to know exactly what you will end up paying and when. It would also be difficult to compare the range of credit products on offer simply by looking at these differing measures of interest.
Thankfully there is one uniform type of interest that all loans, credit cards and mortgages must display to potential customers. This type of interest is known as APR. APR stands for annual percentage rate and is equal to the amount of interest that you will pay on any loaned sum over the course of one year. The fact that all loans of any kind have to tell you what the APR is means that this is the best way to compare and contrast the interest rates on your options.
There is however one catch when it comes to APR. Lenders are only required by law to display what is referred to as the "representative APR". A loans representative APR is calculated by working out the amount of interest that at 51% of the people who are approved for this loan will pay. What this means is that you may see an advert for a loan that displays a fairly low APR but in reality you may end up paying much more for your level of interest than you initially thought. It is important to remember that up to 49% of the people who are approved for this loan may be paying more than the advertised representative APR and you could be one of them.
Another problem with using APR is the fact that you will not know what level of interest you will be paying on a loan until you have already applied for it. This doesn't mean that you'll have to agree to the amount before you even know what it is, but it does mean that if you apply for the loan and get your application turned down, you will get a negative mark on your credit record. For this reason it is always a good idea to try and read the small print in advance of your application so that you can see if there are any requirements that the lender has set for this loan being approved. By doing this you will allow yourself to get a better idea of how likely it is you will be approved before you actually apply.
Cashback cards allow you to receive a small amount of money back in cash on each purchase that you make. Normally the amount of cashback that you receive is around 3-5% but this does vary from card to card.
This scheme can be a great way to make money back off of your purchases but there is a condition to this, you need to make sure that you have paid off each balance before the end of each month. If you fail to do this you will end up paying more on interest than you actually save on cashback.
If you don't have a massive financial safety net in place that makes you confident of making sure you hit the repayments, then it may be an idea to go for a credit card that charges less interest than cashback cards.
Interest free credit cards
Interest free credit cards are cards that have an interest free period that lasts for a set amount of time after opening the account. This period varies from card to card and can sometimes last up to three years from the opening of the account.
If you are planning on making a purchase that will take a few months to pay off, these cards can be a really good idea and you don't have to worry about the mounting levels of interest. These cards also won't penalise your credit rating if you don't pay things back at the end of the month.
However it is of the utmost importance that you make sure you budget correctly for these types of purchases and don't just go wild with the idea of a free loan. The reason for this is that it is not free forever! Once the interest free period is over, you will have to pay interest as normal for every month that the debt remains outstanding.