The credit card market is becoming more complex and the best product will depend on how you plan to use your card. Last week we explained cards suitable for people looking to make a balance transfer; today we evaluate what to look for if you are searching for a credit card to use for spending.
Purchase cards explained
The traditional use of a credit card is for purchasing goods or services, whether in the high street or online. Credit card companies require you to pay a minimum off your balance each month. However, interest will be charged if you do not clear your balance. This is crucial in working out which is the right card for you.
I clear my balance in full each month
If you clear your credit card each month, then the annual rate of interest is irrelevant. This means, in theory, any card will do. However, some deals offer additional benefits such as cashback or reward points, so it's sensible to take advantage of one of these deals if you clear your balance in full, as the credit card company is effectively paying you to spend on the plastic. We'll look at cashback cards next week.
I can't afford to pay my balance off in full
One attraction of credit cards is that you can spread your repayments over a number of months, which can be helpful if you want to make a large purchase. However, if you want a credit card for this purpose, the interest rate – displayed as an annual percentage rate (APR) – has a big impact so it's crucial to look for a card charging the lowest rate.
A number of deals offer interest-free periods. The longest on offer is 12 months on the Tesco Clubcard credit card. However, you should clear your debt within the interest-free period because the rate will jump once it ends. If you can't, you should consider a credit card with a low long-term rate such as Barclaycard Simplicity, which charges 6.8 per cent.