Best Credit Cards for MAY 2022
What is a credit card?
A credit card is simply a physical piece of plastic that is used as a replacement for using actual bank notes or coins in order to pay for goods or services.
Each credit card will have a credit limit that restricts you spending above a certain amount on the card. The money you spend on your credit card will need to be paid back. At the end of each month you will see a statement showing the items you purchased with your credit card together with the amount you owe. If you don't clear the balance at the end of the month then you will be charged interest on the outstanding amount.
The difference between a credit card and a debit card
With a credit card, you spend money using your line of credit from the provider. This money is then paid back in full or in regular repayments. Using a credit card to pay for things may incur charges such as interest and other fees.
A debit card on the other hand is linked directly to your bank account. When you pay for things using a debit card, the money is automatically taken out of your bank account.
Credit card limit
The amount of your credit limit is determined by the provider and is based on a number of factors including your income and past credit history.
Your credit history will be checked during the application process. This history can include details of money you have previously borrowed together with a record of how well you repaid the money back. Your credit file may also include any current credit arrangements you have such as existing credit cards, loans, mobile phone contracts and mortgage information.
This information produces your credit score or credit rating. Essentially, this rating will determine how suitable you are for the credit card and how much your credit limit should be.
You should consider checking your credit score and credit report before applying for a credit card.
Types of credit cards
Some credit cards offer various introductory rates, rewards or are focused on helping you build a credit history
Balance Transfer Credit CardsThese cards allow you to transfer the debt from an existing card to a new card with a different provider in order to take advantage of lower interest repayments. Balance Transfer credit cards can offer 0% interest on the amount transferred usually for a set period of months.
Purchase Offer Credit CardsThese cards can offer 0% interest on new purchases for a set period of time. Purchase credit cards are generally used to buy large, more expensive items in order to take advantage of repaying back the amount without interest. However, after the 0% interest period ends, the rate will generally revert back to the standard interest rate on the card. Therefore, you should plan to pay back the amount before this happens.
Rewards Credit CardsThe rewards offered by these cards can be in the form of vouchers, discounts and money off your bill. Some rewards credit cards offer reward points such as Nectar Points that can be redeemed for money back on your shopping. Certain cards are designed for frequent travellers and offer Air Miles that you can accumulate and buy airline tickets with.
Cashback Credit CardsThese cards pay you cash each time you spend money using the credit card. Some cashback credit cards offer introductory rates that give you a higher percentage of cash back during a set period of time.
Credit Builder Credit CardsIf you have a poor credit history or very little or no credit history, then a credit builder credit card may be worth looking into. Essentially, these types of cards offer a very limited amount of credit and are designed to help you build up a good credit history for the future. They usually have more relaxed application requirements. However, they often have higher interest rates than other cards so you should aim to repay the full amount at the end of every month in order to avoid steep interest repayments.
How to compare credit cards
- The first thing to do is to decide your reasons for having a credit card. Are you looking for rewards points, transfer an existing balance, make a large item purchase or build up your credit history?
- Narrow down your search for a card type that best suits those requirements. See the explanation above as to the type of cards available.
- Once you have a list of cards that meet your needs, focus on the specific rates charged, other potential fees, rewards and introductory offers.
- Consider checking your current credit score and credit report before applying for a credit card. Ensure your finances are in a healthy state and your credit history is sufficient to meet the requirements of the card.
- Apply for a credit card online using the links provided in the PocketRate Credit Card Table.
Types of credit card offers
When looking for a new credit card there are some key factors you should consider when comparing the various deals available. Although, some of these offers sound persuasive, you still need to bear in mind the basic numbers that may affect your repayments.
Low APR interest rate offers
Unless you pay off the full balance of your credit card at the end of every month, the amount of APR you will be charged should be your number one priority. The APR is the Annual Percentage Rate and is the amount of interest you will incur on your outstanding balance. The lower the APR rate, the better.
0% Balance Transfer offers
If you're looking to transfer an existing credit card debt from your old card to a new card in order to save money on interest payments, then you should look for 0% balance transfer offers.
The important factor with balance transfer offers is the length of time that the 0% applies for. The longer the 0% lasts for, the better as once the offer period has expired, your interest rate will usually resort back to the standard APR rate.
0% purchase offers
A 0% purchase card effectively gives you an interest free period for new purchases, particularly useful for spreading the cost of more expensive items such as furniture items, electrical items, white goods or a holiday.
Again, the goal here is to find a card that gives you the longest 0% purchase period as you will start paying the regular APR rate once the free interest period is over. So you should aim to repay the whole amount before this offer expiry date ends and the higher rate kicks back in.
Rewards and cashback offers
These types of credit cards reward you for using the card to purchase items. The rewards can either be shopping points, cashback incentives, vouchers or something else.
However, before looking at the rewards on offer, you should always remember to check the more significant issues first, such as the APR rate as discussed earlier. Whilst some reward offers sound enticing, the fact remains that you are still subject to the APR rate and potentially high interest repayments if you don't pay off your balance in full at the end of the month. This may negate the amount you get in rewards for using the card.