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Choosing a Credit Card Provider

Choosing a Credit Card Provider

Choosing a credit card nowadays can be difficult. There are many products available from traditional credit cards through to cards that give cashback rewards and loyalty points and even charity credit cards. These cards donate money to a given charity when a consumer applies for a card and when it is used for purchases. With so much choice available choosing the right one can seem a daunting task. When looking for the most cost-effective option it will be necessary to consider various factors.

Considerations when choosing a credit card

Although the majority of credit cards work in much the same way, it doesn't mean that they are all equal. For this reason, consumers looking to choose a credit card should consider the following factors before coming to any decision:

Annual Fees: some credit cards come with no fees attached but many will charge the user a fee just for having the card in the first place. This fee is usually charged on an annual basis. Annual fees used to be charged as standard across the credit card industry although, in recent years, their use has declined. Although many credit card companies could still charge an annual fee they may waive this, either as standard practice, under certain conditions or as part of a special promotion. It is possible, however, that some credit card companies will start to reinstate these charges in the future. Some card providers will charge an annual fee to all customers whilst others may only charge a fee to those who do not use their cards very often.
APR: APR stands for Annual Percentage Rate. This is the rate of interest per year that will be charged on a credit card if the user does not pay off the balance in full every month. This is a useful way of comparing credit cards as the APR shows the interest that will be charged on any borrowing. APRs vary widely depending on the lender and so is an important factor when choosing which lender to opt for, especially for users who will not being repaying their balance each month. Those that do pay off their balance every month may not find the APR as much of an issue and could well choose a card with a higher rate but with a range of other benefits that suit them better.
Minimum Payments: credit card statements (which are usually posted monthly) show a minimum payment that must be made by the customer in order to keep within their agreed terms. This is, of course, only the minimum required and there is nothing stopping the customer from repaying more than this. The minimum payment is usually calculated as a percentage of the total balance owing. Credit card providers also have a pre-set minimum which will come into force if the payment due from the borrower falls below a certain sum. So, for example, if the normal minimum payment based on the usual balance percentage calculation amounts to £4 but the pre-set minimum is £5 then the minimum payment would be £5.
Balance Transfers: many credit card suppliers now offer balance transfer deals to encourage new business. It allows the customer to transfer balances owed to other credit card providers. There are various kinds of balance transfer deals including 0% offers. This means that a customer can transfer the balance from one credit card to another taking advantage of special, lower rates of interest than are normally charged. The advantage here is that no interest will be charged on the transferred balance. This kind of special offer usually lasts for a set period--three months, six months or a year. While there may be no added interest however, balance transfers are not usually free. The user will have to pay a fee based on the amount being transferred.
Promotional Rates: many credit card companies will offer special promotional interest rates for new customers, for example lower rates for three or six months. Others will offer 0% interest for a given period in order to attract business. These special rates vary widely and bear close inspection.

Pitfalls with promotional deals

Although many promotional deals seem attractive in the shorter term, it's important that consumers take time to look at the charges the credit card provider will make in the longer term. For example, a 0% balance transfer and interest rate deal may look appealing but can becomes less so if the APR charged after the promotion term is over is above the industry average. It would be prudent, therefore, to read all of the terms and conditions of any promotional deal in detail before applying for any credit card.

Looking after your credit score

When applying for a credit card the provider will almost certainly check on a consumer's credit rating/score. This detailed information allows the firm to make a judgement as to the applicant's creditworthiness based on their financial history. If a consumer has a poor record of payments to other borrowers this may adversely effect their credit rating and thereby their application for a credit card. Some consumers also find that their credit score is weakened if they have applied for several different types of financial products over a short period of time. If this happens then a card provider may reject an application as this pattern of behavior is viewed as suspicious. It is important to ensure, therefore, that you do not make multiple applications, rather choosing carefully beforehand.

Conclusion

Though it is argued by some that credit is too easy to obtain, it is nevertheless a consumer's responsibility to to manage their finances sensibly. While the right type of credit card can be a useful tool, it does not replace sound judgement or common sense; any credit will always have to be repaid eventually and the longer the borrowing period, the more interest that will accrue. These guidelines should be bourne in mind when spending on any credit cards to ensure that borrowing always remains within the limits of what can be comfortably afforded.