What you need to know before you apply for a credit card

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Credit cards can serve to make your life easier, given they are used right. Not only can a credit card allow you to make payments when you otherwise wouldn’t be able to, they also allow you to develop your credit score if used well.

But, with so many credit cards on the market, how do you know which option is the right one for you?

Get to know the lingo

Credit cards have their own language, we’ve covered some of this off for you. Make sure you pay attention to the small print, it’s a pain to read but it’s worth it in the end so you don't get caught out.

  • Annual Percentage Rates (APR): The price you pay on top of the money you borrow. The interest rates are typically stated as a yearly rate.

  • Late fees: What you'll be charged if you fall behind on paying your bills. It's usually a flat priced fee around £12.

  • Credit limit: This is the limit of credit you are allowed borrow on your credit card.

  • Credit limit fees: Standard fees that apply when you go over your credit limit.

  • Withdrawal fees: Most cards will charge you for making cash withdrawals from an ATM using your credit card, usually of about 3% of the amount. On top of this you’ll also be charged interest, typically at the annual percentage rate.

  • 0% interest free period: Usually an introductory offer where you won't pay interest on the money you spend on the card, however, there are a number of cards now offering up to three years or more interest free. You’ll normally have to pay a fee to transfer your balance, usually of about 3% of the amount.

Avoid 'little and often'

To avoid getting into credit card debt, it's important to only spend on your card what you can afford to pay off in full at the end of the month. When we spend 'little and often' costs can run away with us and leave us with a nasty surprise when the bill lands.

Other than in emergencies you should never use a credit card as you would use a debit card. Try and save it for planned, budgeted purchases.

Treat your card well and it will reward you

Sticking to carefully planned purchases can also earn you some rewards. Some card companies offer cash back, loyalty points or air miles among other incentives for larger purchases. Be aware, these benefits are only available if you pay your card balance in full at the end of the month.

Pay in full and on time

When you get your credit card bill you can choose to pay off a minimum amount, the whole thing or any amount you choose. Set up a direct debit for the amount you want to pay every month.

Always aim to repay as much as you can - if you only make the minimum payment, it’ll take a long time to pay off your debt and you’ll end up paying a lot more than you borrowed.

Most people opt for the minimum as it appears the most manageable. This is a dangerous trap to fall into as it can take longer for you to pay back your debt, you can rack up bigger charges and your credit score could take a hit.

Check out the minimum payment warning on your card bill, this will show you how many years it’ll take to pay off your credit card if you continue to pay the minimum.

Check your credit score/report before applying

Before you take on any sort of borrowing, check your credit score and report. It will help manage your expectations about what amount/rate/term you are likely to be approved for. It might be better than you expect but always be realistic.

What now?

Head to a comparison site. They’re the best way of comparing like-for-like but they’re most effective when you’ve decided which credit card feature is most important to you so you can narrow down the thousands of results. Most sites have effective calculators to show you the best card you might be approved for.

Our articles cover a wide range of mainstream financial products and employee benefits. Terms and conditions of each product may vary depending on your provider. Please ensure you check the specific terms and conditions of any financial products and employee benefits available to you from your employer.