Choosing and applying for a credit card

Getting a credit card can be exciting, but you need to choose wisely and apply with care. Find out about choosing the right card for you, and how to make a successful application without damaging your credit rating.

Choosing a credit card – what to look out for

Top tip

Borrowing on a credit card can give you a bit of extra flexibility – but make sure you choose the right card and pay it back in full each month if you can.

Choosing a credit card can mean digesting a lot of information and numbers – it’s much easier if you know what to look for.

Here are some key points:

Look at the APR

The annual percentage rate (APR) is a measure of the overall cost of the card. However, you need to use it with care.

The way the APR is worked out is laid down in law, and is based on certain assumptions.

This is necessary, to enable you to compare on card with another, but it does mean it might not match up with how much it actually costs you.

This will depend upon how you use the card - in other words, how much you spend on it each month, on purchases or other transactions, and how much you repay.

The APR assumes that you use it only for purchases, and doesn’t take into account the cost of balance transfers and cash withdrawals. It also ignores any introductory rate.

In effect, it assumes that all your purchases are at the interest rate that will apply once the introductory period has ended, taking into account any annual or monthly fee.

It also assumes that you draw down the entire credit limit on day one and repay in equal monthly instalments over a year, without any further transactions.

Lenders have to include the APR in the credit agreement and the pre-contract credit information, and in most advertising, it can be used to compare different credit cards, but it should only be the starting point.

You also need to look at the individual interest rates for:

  • Purchases
  • Cash advances
  • Balance transfers

And how long any introductory period lasts.

What suits one person might not suit another, if they have a different pattern of drawdowns and repayments.

Watch out for ‘Representative APR’

What you see isn’t always what you get. Some card providers set your interest rate based on your credit history.

This means that, if you don’t have a good credit rating, you might pay a higher rate of interest and so the APR might be higher than advertised.

Advertising will usually quote a ‘representative APR’ - one that most people (at least 51% or better) are offered.

If you have a poor credit history, or are new to credit so have a ‘thin’ credit file, you might be charged a higher rate.

Ask the card provider for a quote before applying - see below.

Check the fees

The APR doesn’t include any charges for late payments, exceeding your credit limit or returned payments.

See how to minimise the fees you pay in our guide to Managing your credit card account.

Weigh up introductory offers

Card providers often tempt you with offers that last for a fixed period of time.

The most common is to pay 0% interest on things you buy or balance transfers (debt you transfer from another card).

In some cases the 0% offer might be on both purchases and balance transfers, but typically it’s just on balance transfers, or the introductory periods might be different. Check carefully what’s being offered.

A 0% purchase offer is a cheap way of borrowing when you need to buy something big.

But make sure you can pay it off in full before you introductory period ends, as otherwise you’ll start paying interest (at the APR rate).

You might not be able to transfer the balance to another card then, as the same offers might not be available, particularly if your credit rating has gone down in the meantime.

Check the terms and conditions on balance transfer offers

A balance transfer means moving your debt from one credit card to another.

There are some good introductory offers around, but check how long these last.

You will have to pay a fee, usually around 3% of the balance transferred, so you need to take this into account (and check if there is a time limit on the transfer). If you don’t make at least the minimum payments throughout, the 0% offer might be withdrawn.

Some 0% balance transfer cards don’t charge a fee. This could be good value, even if the 0% period is shorter than on other cards, provided that you can afford to repay the debt before the introductory time ends.

Find out if you should Transfer your credit card balance.

Do you really need the benefits?

Some cards come with benefits including:

  • Air miles
  • Cashback
  • Free travel insurance, or
  • A concierge service (like a personal assistant over the phone - anything from hotel bookings to ordering food delivery)

Think before you opt for any of these. Are they worth your while?

They usually come at a price, such as a higher interest rate or an annual or monthly fee.

Check what you’ll pay each month

If you don’t plan to pay your balance back in full every month, use our Credit card calculator to work out how much interest you could end up paying.

The figures can be scary. Unless you’re on a 0% deal or have more expensive debts elsewhere, you should always aim to pay off what you owe at the end of the month.

If you can’t do that, pay off as much as you can to keep the total cost down.

Applying for a credit card

Ways to apply

There are various ways to apply for a credit card:

  • By Post - you fill in a paper form, which you can usually get at the bank that’s offering the card.
  • Online - you fill in a form on the web. You might be sent some paperwork to sign and send back in the post.
  • In-branch – someone in your bank can help you with the application. You’ll usually need to make an appointment.

By laws, you must be given pre-contract credit information in a standard form (the SECCI) and a credit agreement to sign - either electronically or on paper.

You must also be given an adequate explanation of the key terms and risks, so you can understand what you are taking on. If in doubt, ask questions.

If there are FAQs on the website, but these don’t cover the particular point, ask the lender directly.

The downside of applying – it might affect your credit rating

If you’re shopping around and comparing various credit offers, make sure you don’t actually apply for credit until you’ve decided on the best deal.

Every time you make an application for a credit card, it’s noted on your credit file.

If you make too many or your applications are refused, it might suggest that you’re in financial difficulty, which can damage your credit rating.

This might lead other lenders to reject an application, or to increase the interest rate at which they are prepared to lend.

If you’re wanting to know whether you are eligible for a card, or the price you’re likely to be offered, ask the card provider for a quote.

They don’t have to provide one - but if they don’t, you might decide to walk away and look elsewhere.

In some cases they might be able to provide a quote, or indicate whether you are eligible, only after making a a credit reference agency (CRA) check.

If you are not yet ready to apply, ask if they can make a ‘quotation search’ (which does not leave a mark on your credit file) rather than an application search (which does).

If they refuse, think carefully about whether you want to go ahead.

Also, if you’re offered a quote, check whether this is guaranteed.

Some might just be indications of likely eligibility or price, and most lenders will reserve the right to change their mind if new information comes to light.

Improving your chances of getting a card

Take these steps to improve the chance of having your application accepted.

  • Make sure you are on the electoral register at your current address.
  • Cancel any cards you don’t use. These days, companies are interested in how much credit you have available, not just your credit record. If you have so many credit cards that you might get into thousands of pounds of debt, they’re unlikely to give you another one.

If your card application is refused

If the lender rejects you on the basis of a CRA check, they must tell you that and give you the contact details of the CRA they used.

In any event, you can ask the lender why your credit application was declined.

You can then apply to the CRA for a copy of your credit file for a small fee.

It shows:

  • Previous credit searches
  • Your repayment history (whether you tend to pay off your cards on time)
  • Any repayment difficulties with other loans or credit commitments
  • Any financial problems you have like County Court Judgements or defaults registered against you
  • Electoral roll details

If there’s something wrong on there, talk to the CRA, and if necessary contact the credit provider, to get it put right.

How to keep up a good credit rating

The most important thing is to always get your repayments in on time – late or missed credit card, loan or mortgage repayments can seriously damage your credit rating.

The best way to avoid missing a payment is to pay by Direct Debit.

Other things that affect your credit rating include:

  • Your job – is it permanent and secure, and how long have you had it?
  • Your home – do you own your own home, or have you lived at the same address for at least a year?
  • Your phone number – it helps to put your landline rather than your mobile number on the application form

Credit builder cards

If you’ve been turned down for a card because you’ve got a poor credit rating, one way of rebuilding your credit history is to use a credit builder card.

But these tend to be more expensive, so think carefully before you opt for one - and remember that if you miss payments, or pay only the minimum each month, it could end up making your credit rating worse.

See recommendations for the Best cards to rebuild your credit score on the Money Saving Expert websiteopens in new window.

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