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What are the different credit card types?

There are a number of different types of credit card on the market. Find out what's what with our guide to help you choose the best card for you

In this article
Why take out a credit card? How to know which credit card type is right for you What is a 0% balance transfer credit card?  What is a money transfer credit card? What is an interest-free credit card?  What is a credit-builder card?
What is a cashback and reward credit card?  What is a travel credit card? What are 'low-interest' credit cards? Credit cards offer extra protection  Understanding your credit limit Best and worst credit card providers 

Why take out a credit card?

Credit cards are one of the most popular ways of borrowing. You can choose how much to spend within your credit limit and how much to repay each month. 

There will always be a minimum payment requirement – usually between 2% and 5% of the amount you owe.

If you don't clear the balance each month, you'll be charged interest on what you've borrowed. You'll also face default charges if you make a late payment or exceed your credit limit, typically up to £12. 

Here, we provide a summary of the different credit card types available and who they may be suitable for. 

 

How to know which credit card type is right for you

Before applying for a credit card it's important to work out how you want to use it.

Do you need it to reduce debt? Are you planning on making a big purchase and want to spread the cost across a few months? Or are you going on holiday and need it to spend abroad?

We've set out some motivations behind getting a credit card and which deals might suit below, but read on to find out how these cards can work for you.

  • Earn rewards: a cashback or reward credit card 
  • Help with debt: a 0% money transfer or a 0% balance transfer credit card 
  • Everyday spending: a low-interest, cashback or reward credit card
  • Improve your credit rating: a credit-builder card 
  • Spending abroad: a travel credit card or a prepaid card if you don't want to borrow
  • Making a big purchase: an interest-free or low-interest credit card. 

What is a 0% balance transfer credit card? 

A credit card with a 0% balance transfer deal allows you to move debt from an existing card, which you can then pay off interest-free.

Many balance transfer deals charge a fee to transfer the balance – this is typically about 3%. The longest deal on the market currently stands at 33 months.

It's a great way to minimise the cost of borrowing if you've got existing debt. Once your 0% deal finishes, you'll start being charged interest at the card's standard rate, so you should either repay the balance beforehand or switch to another 0% balance transfer deal.

What is a money transfer credit card?

A money transfer credit card allows you to shift money from your card to your current account to spend as cash, usually for a transfer fee of 4%.

If you get a 0% money transfer you'll often be offered an interest-free period, which you can use to repay the debt.

These cards work similar to balance transfer credit cards – but the difference is that balance transfer cards only allow you to shift debt between credit cards. 

This type of card could help you clear an expensive overdraft or payday loan or get an interest-free loan for cash-only purchases. 

If you held an 18-month 0% money transfer card with a limit of £2,000, you could request a £1,000 money transfer to your bank account – at a typical 4% fee, you would owe £1,040 on your credit card and have £1,000 in your bank account to spend straight away. You would have more than a year to clear the credit balance before interest was charged.

What is an interest-free credit card? 

Some cards offer 0% on purchases, which charge no interest on spending for a limited time, with the longest deals now standing at 24 months.

These cards are perfect for spreading the cost of a large purchase, or for making lots of smaller ones, over the interest-free period. 

These cards only work if you're disciplined enough to put money aside to repay the debt in full at the end of the 0% period, because otherwise the card will revert to its headline interest rate, which in most cases is reasonably high at around 20% APR. 

What is a credit-builder card?

Credit-builder cards are specifically targeted at those trying to rebuild their credit rating (or build one up if they have no credit history).

If you don't know what your credit score is, use our guide how to check your credit score for free

If you get one of these cards, you should always pay off the bill in full every month as they often have a very high APR – anywhere from 27% up to 60%. They tend to have a ‘low and grow’ approach, whereby your initial credit limit is very low (say £100 to £200), but increases as you prove you can manage it responsibly. 

What is a cashback and reward credit card? 

Cashback credit cards allow you to earn a percentage back on what you spend. This money is paid as a credit on your account monthly or yearly. 

The standard rate offered typically ranges from 0.25% to 2% of the amount you spend. Some of the best deals on the market also offer a higher introductory rate of up to 5%, although the amount of cash back you can earn is often capped over this period. 

Reward credit cards differ from cashback credit cards by giving you points that you can redeem against goods and services, or convert into reward vouchers with a particular retailer.    

The best way to use these types of credit cards is to avoid borrowing and only spend money you have so the balance can be paid in full every month.

    What is a travel credit card?

    Most credit card providers charge a non-sterling transaction fee of 2.99% and a non sterling cash fee of 3% if you spend on your card abroad, but travel credit cards don't. 

    Travel credit cards are best used abroad or on foreign websites in another currency. 

    The key rules for these are to not withdraw cash, spend in the local currency and avoid borrowing if there is no 0% period. The APR on these cards can typically range from 19% to 34%. 

    What is a prepaid card? 

    Prepaid cards are not credit cards, as you can only spend funds that are preloaded on to them. 

    They are commonly used by travellers overseas, as they can be a good way of avoiding the hefty foreign-loading fees often charged by debit and credit cards.

    What are 'low-interest' credit cards?

    Credit cards with a low standard interest rate (a low APR) make the headlines, but these aren't necessarily the best cards for everyone. For most people, a card for one of the specific uses above is probably a better deal. 

    This type of credit card is worth considering if you're likely to use it infrequently and won't always pay off the bill in full.

    But watch out. Banks and credit card companies tend to use your credit history to set interest rates on their credit cards. This means that those with a poor credit history are generally offered a higher interest rate when they apply. 

    Credit cards offer extra protection 

    When you use your credit card to buy something costing more than £100 and up to £30,000, you get extra protection under Section 75 of the Consumer Credit Act.  

    Also, most credit card issuers will send a replacement credit card and cash if yours is lost or stolen while you're abroad. Some promise to get cash in your hand in just an hour.

    Understanding your credit limit

    You will be given a credit limit when you open up your credit card account – this is the maximum amount of money you can owe at any one time on that card. 

    For example, if you have a credit limit of £2,000 and your balance stands at £1,000, then you have a remaining limit of £1,000. If you go over that limit, you'll usually face charges and won't be able to spend on the card until you have paid some of your debt.

    You'll normally find out what your credit limit is when you apply for the card, this will be decided on a range of factors including your credit history, your availalbe income, your existing credit card commitments, your limits on other credit cards and the lender's lending policy. 

    The longer you stick to the agreed payments, the more reliable a borrower you look and after a few months you could ask your lender to increase your limit, or they may offer it to encourage you to use it more. 

    Best and worst credit card providers 

    If you’re looking to take out your first credit card, or want to switch, you can check out our best and worst credit card providers to see which brands are Which? Recommended Providers.

    You can also have a look at our credit card company reviews for more detail on how customers rated brands for their services.

     

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