21 December 2015

What to look for in a credit card

There are so many credit cards on the market that choosing the best one for your needs and financial situation can be tricky.

We take a closer look at some of the key things you need to consider before applying for a credit card.

APR

Annual percentage rate (APR) is the amount you are being charged for credit on an annual basis.  It includes the interest you’ll pay on any balance not cleared and any fees. Typically the lower the APR the less you’ll pay for credit. If you’re carrying forward an outstanding balance from another card, having a lower APR would reduce the amount of interest you pay on the outstanding balance. 

By law, all credit card providers have to use the APR in advertising, so it’s a great way to compare cards. It is important to note that the APR advertised is usually representative and might not be the rate you actually get once lenders have taken your credit rating into account. As part of the credit application process lenders will perform credit checks with the credit reference agency. Please be aware that multiple credit searches may affect your ability to obtain credit elsewhere.

Charges or fees

Some cards have an annual or monthly fee, which you may pay interest on if you don’t clear the balance each month. Ask yourself what benefits the credit card provider gives you for paying a monthly or annual fee that you wouldn't otherwise get. There may also be other charges that apply i.e. late payment charges, charges for using the card abroad and charges for withdrawing cash. Check product details carefully so you are fully aware of any fees or charges.

Repayment terms

If you’re not going to be paying off the balance in full you need to consider repayment terms and how the minimum monthly payment is calculated. This is typically a percentage of the balance due — normally between 2–3%. You can see the exact amount in the product summary box before you apply for the card. 


Introductory offers

Introductory offers such as low interest rates or 0% interest on balance transfers can seem great – if you use them properly. You’ll just need to make sure you pay off the balance before the promotional period ends or you may be stung with high interest rates. 

Perks

Some credit cards come with perks like cashback or rewards in the form of loyalty points for certain shops or airmiles. Think about whether you’re likely to make best use of these. Will you spend enough to fly further than Leeds? Do you shop in the places the loyalty points are accepted? You may also only qualify for the perks if you clear your balance every month. If you’re not going to benefit from the perks, you may want to consider another card. 

How do you plan to use the card?

When choosing a credit card, it’s also important to think about how you plan to use it, as this will help you decide which card is best for you. For example, if you can’t afford to pay off the balance every month, the card with the lowest APR may be your best choice, but if you clear your debts then why not look for a card that rewards you with cashback or loyalty points?

If you just want to make a big ticket purchase like a new sofa or a holiday and spread the cost out over a few months, an interest free deal could be good for you – but make sure you can pay back the balance before the promotional period ends. Regular travellers may want to hunt out a card that’s cheap to use overseas.

Nationwide credit cards are available to UK residents aged 18 or over and are subject to your circumstances. Nationwide subscribes to the Lending Code. You should consider all borrowing options carefully and seek independent advice.

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