If you are new to credit cards, it is very easy to get confused when choosing from the many different options available.
If you've previously never had a form of credit, only a small number of them will approve your application as there is not much information available for the lenders to make the decision. To get one of the good cards that offer you rewards and low rates you need a good credit history and to build your credit history you need to have a credit card in the first place.
The good news is there are credit cards out there that will accept you designed specifically for building a credit history. A good place to start is to understand how credit cards work.
What is a credit card?
In essence, a credit card is a tool that lets you manage your finances by borrowing money up to a pre-approved limit to pay for your purchases. The limit is decided by the institution issuing the card based on your credit score and history. The borrowed amount is later then paid back in full or spread over monthly installments.
The amount you need to pay back is determined by the interest rate as well as special offers such as interest-free periods when you first sign up for the card. The main key benefit is if you pay off your balance in full every month, you won't pay any interest on what you've borrowed unless you have used your credit card to withdraw cash.
Important to know before applying for a credit card
- We recommend using a comparison website to check if you qualify. Not only you can see if you will be accepted, but you can also see which credit card will offer you the most benefits and lowest interest rates. Also, the exact same credit cards often have a lower APR interest rate on the comparison website than they will when you go directly to the credit card website.
- The majority of credit companies will perform a soft credit score check before you apply. This type of credit inquiry will have no impact on your credit rating and will not show up on your credit report.
- It often looks like there are a lot of different options to choose from, but in reality, the vast majority of them are just copies of the same credit cards run by the same company marketed under different brands. (e.g. Newday offers Aqua, Opus, Marbles, Amazon, Fluid, etc.)
- Credit cards aren’t suitable for cash withdrawals because of the high fees plus the interest at a higher rate.
- Make sure you make at least the minimum payment each month, even during the interest-free period. You can pay your bill in a number of ways, but a good recommendation would be to set up a Direct Debit providing you can rely on enough money coming into your bank account each month before the Direct Debit due date. This will help to prevent missing a payment, which could lead to unwanted charges and the loss of any introductory bonuses. Missing or late payments could also damage your credit rating.
Credit card options
Credit cards fall into a number of different categories: cards designed for balance and money transfer that allow you to manage existing debts; low rate or 0% interest period options that are great for purchases; as well as those that provide cashback, rewards, and other benefits. Finally, some cards are designed specifically for business users, travelers, or those looking to build their credit rating.
We have selected a few we consider the best for each of the above categories to help you choose what is best for you.
1. Best cashback or rewards credit card
- Interest rate - 22.2% APR variable
- Cashback - 5% cashback on your purchases (up to £100) for the first three months of Cardmembership, 0.5% on spending between £0-£5000, and 1% on everything over £5000 after the introductory period. Minimum £3000 spend and cashback paid after 12 months. ( Cashback earn rates are changing from 4 August 2021. Find out more )
- Rewards - Offers and discounts with a range of retail and travel partners
- Annual fee - £0
Amex is known for its exceptional customer support and its market-beating rewards schemes. Combining their attractive cashback and rewards without the high annual fees other cards have, this card won't disappoint.
2. Best credit builder credit card
- Interest rate - 27.5% APR variable
- Rewards - Collect Tesco Clubcard points almost everywhere you use your card, plus your usual points in Tesco
- Starting credit limits between £200 - £1,500
We picked Tesco as this card offers one of the lowest APRs and also offers Clubcard points as a reward when using it which makes it better than any other credit-building card out there.
3. Best 0% purchase and balance transfer credit card
- Interest rate - 21.9% APR variable
- Rewards - Collect M&S points every time you shop anywhere in the world with your M&S Credit Card. You'll receive one point for every £1 you spend in M&S and one point for every £5 you spend elsewhere
- Interest-free period - 0% interest on purchases for 20 months. 0% on balance transfers for 20 months, subject to 2.9% fee
- Annual fee - £0
This card offers one of the longest interest-free periods and unlike others, this is guaranteed. It also has a low APR after the interest-free period ends and it also offers M&S points every time you use the card.
Along the interest-free period, this card also offers an interest-free balance transfer option for a 2.9% fee. While not the best one out there, this card is the best overall option. As an alternative for a balance transfer card, you can check out HSBC Balance Transfer Credit Card
4. Best travel credit card
- Interest rate - 22.9% APR variable
- Foreign transaction fee - 0%
- Cash withdrawal fee - 0% ( You’ll be able to withdraw cash from an ATM or buy your souvenirs without any charges )
- Rewards - 0.25% cashback on your everyday spend
This card allows you to earn 0.25% cashback and enjoy the rewards for every purchase not having to worry about a foreign transaction or withdrawal fee while traveling.
5. Best all-round credit card
- Interest rate - 21.9% APR variable
- Interest-free period - 0% on purchases for 3 months
- Sign up bonus - £20 Amazon Gift card
- Rewards - Collect points on the spending you already do. Every 1000 points add up to a £10 Amazon Gift Card. Get 3 Amazon Reward Points for every £2 spent at Amazon with prime, 1.5 Amazon Reward Points for every £2 with non-prime membership, and 0.5 Amazon Reward Points for every £2 spent everywhere else Mastercard is accepted.
- Annual fee - £0
This card manages to provide attractive point rewards, an initial 3-month interest-free period, lower APR, and a real money reward of £20 in form of an Amazon gift card which is pretty much better than most of the credit cards out there. They also promise a £500 initial credit limit instantly upon approval for qualifying customers.
Credit card pros and cons
Pros
- Credit cards offer you protection for most purchases over £100 and up to £30,000 under the Section 75 law. For example, if you book a holiday and the provider goes out of business, the card company should cover the cost even if you only paid an initial deposit by card. You might also be protected for purchases under the ‘chargeback’ scheme should Section 75 not apply but Chargeback is not a legal right unlike Section 75.
- Can help to build your credit score by sticking to your credit limit and paying your credit card balance in full each month. Be aware that missing even a single payment will damage your credit record, so you must be careful to not miss any payments.
- Using a credit card instead of your debit card and paying your balance in full each month will net you rewards such as cashback, reward points, or air miles.
Cons
- They have very high-interest rates if you don’t clear your balance at the end of each month (and you’re not on a 0% deal), you’ll have to pay interest on your outstanding balance. This can be a lot more than other forms of borrowing.
- Can damage your credit score if you are not careful when you are missing payments or go over your credit limit. This can affect your ability to borrow money.
- They can be expensive when using them abroad but very much depends on the type of card you are using. If you plan to use them abroad use a comparison website and search for ones that have lower fees when traveling.
How to get accepted for a credit card
The process of applying for a credit card is relatively straightforward. Many online applications will let you know almost immediately if you have been accepted. You will need to provide your personal details such as name, address, date of birth, nationality, employment status, and salary income. Some providers will also ask for some proof of identity such as a passport, driving license, or bank statement.
It is best to make sure you are eligible before applying to reduce the impact on your credit history. Many card providers also offer online eligibility checkers which can tell you how likely you are to be accepted without leaving a footprint on your credit record. A good place to start is checking your credit score through services such as Experian, or Credit Karma, which will give you a good indication of how likely you are to be successful.
If you are turned down for a credit card, don’t apply for more. Instead, consider asking the provider why you were rejected and see how you can improve your credit score.
