Credit cards may have a bad name, but if you know how to use them well – and pay them off in FULL every month – they can prove very helpful!

Read this ultimate guide to credit cards to find out which one could benefit you best.

There are many different types of credit cards. Popular ones include cashback cards, rewards credit cards, interest-free spending cards, balance transfer credit cards, and some credit cards are designed for use overseas.

Let’s explore the many options and see which card is right for you.

Reward Cards

Most rewards cards fall into one of two categories: travel rewards cards and cash back reward cards.

With a cashback card, it’s easy to understand how much you’ll earn on each purchase. For example, if your cashback card offers 2% cashback on purchases, you’ll get £2 in rewards for every £100 you spend. In contrast, the value of travel programs’ points and miles can vary greatly depending on the loyalty program and the current cost of travel.

All cashback credit cards let you redeem your rewards for cash, often via a cheque, statement credit, or bank transfer. Some travel cards do as well, but you might receive less value if you choose cashback redemptions instead of using the rewards on travel.

All-Rounder: Balance Transfers & Spending

Credit cards tend to be either good balance transfer deals or offer low rates on new spending, but these cards provide cheap introductory rates on BOTH balance transfers AND new spending. This versatility can be advantageous for managing existing debt while planning for future purchases without incurring high-interest rates.

0% Spending: Interest-Free (& Low Interest) Cards

If you have a big, planned, budgeted-for purchase, a 0% credit card is the cheapest way to borrow as it lets you spread the cost over two years or more completely interest-free. These cards are ideal for large expenses such as home improvements, electronics, or travel, allowing you to pay off the balance over time without additional costs.

Balance Transfers: Cut Existing Debt Costs

A balance transfer is when you use one card to pay off other credit or store cards, so you owe the new one but at a far lower rate – often 0% – making you debt-free quicker, as repayments cover debt, not interest. This can be a lifesaver for those struggling with high-interest debt, providing a structured path to paying down balances more efficiently.

‘Bad Credit’: For Poorer Credit Scorers or to (Re)build Your Credit

If you have no credit history or a history of missed payments or defaults, you’re likely to be rejected when applying for credit. But easier-to-get ‘bad credit’ cards can help you rebuild your credit score. These cards typically come with higher interest rates and lower credit limits, but responsible use and timely payments can gradually improve your creditworthiness.

Which Card is Right for You?

One thing many people think of is that they can only use one credit card. The truth is that you can have more than one. So, look carefully at the descriptions above and use comparison websites to find the best card for your needs.

When is the Right Time?

You must be over 18 years of age for most credit cards, but for some cards, you have to be over 21 years. Many credit card providers will check that you are earning a salary.

With all credit cards, you need to be sure that you can clear the balance in FULL every month. If you can’t do this, then it’s not the right time for you. Credit cards are NOT free money.

Benefits of Owning a Credit Card
Section 75 Refunds

Section 75 is probably the most well-known advantage of using a credit card. When buying something that’s a rather large amount, always use a credit card. Purchases include flights, concert tickets, etc. This is because Section 75 is an important UK consumer protection law that means your credit provider must take the same responsibility as the retailer if things go wrong with a purchase. Yet, it doesn’t work on all purchases – just those costing at least £100.01 but not more than £30,000. If it doesn’t, then you won’t have Section 75 cover.

When COVID-19 struck in 2020 and our airline company had cancelled the flights but were taking a long time to refund the money, we knew that we’d get the money back because we paid with the credit card. If the airline company didn’t or couldn’t pay, then we knew we could get a refund through Section 75.

It’s a legal protection put in place so that you’re never in the position of paying off debt for something you either didn’t receive, or wasn’t as it should’ve been. Whether it’s a flight, washing machine, concert tickets, or anything else, pay on a credit card, store card, or with store instalment credit, and the credit provider is responsible too.

Top Tip: Pay the Deposit by Credit Card and You’re Covered for the Whole Cost of an Item or Service

The law is clear on this – you get the protection for the whole cost of an item or service, even if you only pay for a part of it on credit. The only condition is that what you’re buying must cost more than £100 and less than £30,000 in total. As long as it does, you’ll be covered for the full amount, even if you only pay 1p of it on your credit card.

Improving Your Credit Score

By paying off your credit card in FULL every month, you are showing the lender that you can be responsible with your money. This is the best way to improve your credit score. This can really help if you will be applying for a mortgage in a few months.

One thing to note is that you don’t want to be using your full limit. The aim is to use around 20% of your limit and pay this off every month.

Discounts

Many credit card issuers offer cashback discounts or bonus rewards at specific merchants. These card-linked offers are usually targeted and vary by cardholder and the cards you have. Adding offers to your cards before you make a qualifying purchase can save you money.

Is it Worth Paying for a Credit Card?

At the time of writing, the current American Express Platinum card costs £650 per annum. Benefits include dining credit at certain restaurants, worldwide travel insurance, the use of airport lounges, and 40,000 points that you can use.

It is a very good card for a specific type of person. If you know that you are going to be travelling a lot, this could be a good card for you.

You really do need to look at the perks and see if you would benefit from them. You need to do the Maths: would you have spent £650 on these things if you didn’t have the card?

However, the free American Express card is still very good as you still get points and some special offers.

Other cards worth looking at include:

Best card for Cash back: American Express

Best card for points: Nectar Credit Card with American Express and Tesco Clubcard too.

Please note that because these are reward credit cards, the interest rate is going to be high.

Therefore, the Golden rule with all credit cards is to pay in FULL every month. Otherwise, the interest that you are paying will be more than the value of the points.

Balance Transfer Cards

If you currently have a credit card and you are trying to clear it but the interest rates are high and you’re being slammed with interest every month, then a balance transfer card would be a good option.

As the name suggests, moving your debt from the old card to a new 0% balance transfer is a good idea.

The best deals will allow you to transfer the balance to a new card for 0% interest for 13-22 months, allowing you to pay off as much as you can, without incurring interest every month. Try your hardest to clear this debt before the interest-free period ends.

Be warned, some cards will charge a fee for balance transfer. So be very aware of this and do the Maths before you switch.

Also: you will be charged an interest rate on new purchases but you won’t be charged on the balance that you have transferred.

Spending Abroad – No Foreign Fees

These cards are great if you are going overseas for your holidays. However, you must remember to pay in FULL every month.

Summary

There are many cards out there for different uses. If you want to get a credit card for certain purchases or balance transfers, then you must make sure that they are working for you.

Take time to look at comparison sites to see what the best cards are for you. You could try MoneySuperMarket , MoneySavingExpert , or Compare The Market.

You have to play the credit card game!

If you cannot pay in full, every month, then I would leave them alone. Stick to debit cards until you can pay off the card completely every month.

Additional Considerations

Managing Multiple Credit Cards
Having multiple credit cards can be beneficial if managed properly. Different cards can serve different purposes: one for rewards, one for balance transfers, and another for international travel. This strategy allows you to maximise benefits and manage finances more efficiently.

However, keeping track of multiple cards requires discipline. Ensure you keep up with payment due dates and understand the terms and conditions of each card to avoid unnecessary fees and interest.

Credit Card Security

Credit cards offer robust fraud protection. If your card is lost or stolen, you can quickly report it to your issuer and have the charges reversed. Additionally, many cards offer zero liability on unauthorised transactions, giving you peace of mind.

To further protect yourself, regularly monitor your statements and set up account alerts to track unusual activity. Using your card responsibly and staying vigilant can help prevent fraud and protect your financial well-being.

Understanding Interest Rates and Fees
While credit cards offer many benefits, it’s crucial to understand the associated costs. Interest rates can vary significantly between cards, especially if you carry a balance. Always read the fine print to know the APR (Annual Percentage Rate) and any fees that may apply, such as annual fees, late payment fees, or foreign transaction fees.

Using a credit card responsibly means avoiding carrying a balance whenever possible. Paying off your balance in full each month will help you avoid interest charges and keep your finances in check.

Final Thoughts

Credit cards can be powerful financial tools when used wisely. They offer convenience, rewards, and protection that cash and debit cards cannot match. However, they require careful management to avoid debt and financial difficulties.

By understanding the different types of credit cards and their benefits, you can make informed decisions that enhance your financial health. Always compare offers, read the terms and conditions, and use your credit cards responsibly to make the most of these valuable tools.