How to figure out the best credit card for you?

Which credit card is best for me?

Whilst I may be a big advocate for careful spending I'm not opposed to credit cards. They have many useful benefits in terms of building a credit history, delaying cash outlay such that you earn more interest on your cash, you get better purchase legal protection should something go wrong, and some credit cards even pay cash and rewards for their use. One caveat to my cavalier attitude to credit cards: pay them off in full each month.

I was recently asked by a friend "what credit card do you recommend that I get?". This isn't an easy question to answer. Everybody is different and has different requirements. After a little research I was able to give her the details of a credit card that should suit her needs. If you are on the lookout for a new credit card then follow these simple points:

If you don't have much credit

If the card is going to be your first credit card and you have very little income then you're going to be more suited to a credit builder credit card. These credit cards provide the user with a small amount of credit and have extortionate APR interest charges on them should you miss a payment. However, they're great if you're just starting out. Every 3-6 months you'll be able to increase your credit limit. After a couple of years you'll be able to transition to a better credit card.

Who do you bank with?

It can be beneficial to check with your current account provider. The application process will be smoother as they will have a lot of your details on file. In addition, there may be favourable rates and benefits to users of the banks other products. 

Points or cashback?

Many of you may have a good income and could easily afford to make the repayments on a credit card. If this is you then the only real question is whether you want to receive cashback or points as a reward for your credit card spending. 

I have friends who love the points system on credit cards. They build up points for every £1 spent on the card and use the points to get upgrades on flight, sometimes even paying for flights outright. You can also exchange your points for other gifts such as electrical goods and shopping vouchers.

I prefer cash back. For every £1 that I spend I get 1.25% back at the end of the year. This works out at about £200 per year. I love it because it's money in my pocket to spend however I wish and I didn't need to do anything for it. I just purchased whatever I would ordinarily purchase but used my credit card instead of a debit card or cash. 

General advice when taking out a credit card

Test your chances of succeeding with the card application before applying. Being rejected from a credit card application a couple of times in a row can be damaging for your credit history. I strongly recommend using moneysavingexpert.com and putting in your details for the card that you want. The site will tell your the likelihood of success in your card application. If your chances are greater than 50% then I recommend applying.

What about APR and interest rates?

You may be wondering why I haven't mentioned the various interest rates and balance transfers on credit cards. This is because I want you to ignore all of this. I want you to pay off your credit card in full each month, in which case it doesn't matter what the interest will be as you'll never be paying it. As for 0% balance transfer deals - whilst these may be attractive I still want you to get into the habit of paying off your credit card in full each and every month. Do not be tempted to moved your debt from 0% balance transfer card to 0% balance transfer card. That is a potentially dangerous slippery slope.

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