What type of credit card is best?

There are so many different types of credit cards on offer in the UK that it can be tricky knowing which credit card is best for you. Thankfully, we are here to help with our guide on the best credit cards.

As a credit card user in the UK, you should expect a lot more from your card than just making payments and rolling credit from month to month. The UK credit card market is healthily competitive, which means there are some great deals and perks to be had if you do your research and shop around.

If you don’t currently have a credit card with extra benefits, take a look at the list below for a card that works with your spending habits and consider whether it might be worth picking one up.

Airmile credit cards

Airmile cards, as the name suggests, let you earn airmiles as you make purchases. Some cards are co-branded with a specific airline, while some are generic and can be redeemed for tickets and perks with a variety of airlines.

Airline-specific credit cards

These cards are associated with one particular airline. Typically, you accumulate points from both everyday purchases and by flying on the specified airline. As well as saving your hard-earned points for flights, airmile cards often come with other perks. These perks can include discounted car rental, chauffeur service, flight upgrades, inviting a companion to join you on a flight, short breaks away, or gifting your airmile points to a friend or family member, to name but a few.

Generic airmile cards

Generic airmile credit cards allow you to earn points on everyday spend. You can then redeem your points for travel-related rewards with the airline or travel agency of your choice. These cards are an excellent option if you don’t want to be tied down to a specific airline. They allow the flexibility of redeeming points for whichever airline best suits the needs of your trip, including price and availability. With a generic airline card, you gain points for every pound spent on the card. However, it is not associated with a particular airline, you don’t gain additional points by flying.

Each airmile credit card is very different, both in terms of how much you get for your spend, and what range it offers in terms of that reward. It makes sense to compare cards side by side. This way, you can see how many miles you need before you qualify for a free plane ticket or other perks, and how much you need to spend to achieve it. For example, one airmile card may offer a European flight for 10,000 points, while another may offer the same flight for 7,000 points. What is important in this scenario is to work out how much you actually need to spend on your card in order to earn the points in the first place.

Many airmile cards offer introductory rewards to spend on your card, such as enhanced point-earning in your first 3 months, or a free perk if you reach a minimum spend within a given period. These can be enticing, but before jumping in to apply, you should evaluate your own ‘normal’ credit card spend to see whether you will realistically hit the target. Otherwise, another card with more easily attainable rewards may be more suitable. 

With airmile cards, it is also important to check if there is a cap on the number of points which can be earned annually, and whether or not any unused airmile points will expire.

Airmile reward programmes can be costly for credit card issuers, so many of these cards come with an annual fee. With so many variables in airmile cards, their earning potential, and the rewards they offer, be sure to carefully read the terms and conditions before applying.

Bad credit and credit building cards

If your credit rating is less than perfect, or you are completely new to credit (just turned 18, or have never borrowed), then you are unlikely to be offered the market-leading credit cards. This is simply because the card issuers cannot be certain that you will repay what you owe. However, all is not lost! Credit cards for bad credit or credit building credit cards can be used to build or repair a bad credit rating. Used wisely, these cards could help you obtain much more competitive credit in the future.

Credit cards for bad credit

Because having no credit, or a bad credit rating is perceived as ‘risky’ by a credit card issuer, credit cards for bad credit tend to have higher APRs and lower credit limits in comparison to the mainstream cards. Over time though, if these cards are used correctly – paying at least the monthly repayments on time and staying within the given credit limit – cardholders could see their maximum credit limit extended, and should see their overall credit rating improving. Once improved sufficiently, you can then apply for more mainstream cards, with their benefits and rewards.

Credit building cards

These cards are broadly similar to credit cards for bad credit, in that they have higher APRs and lower credit limits than mainstream cards. However, credit building cards are really for those who have some evidence of credit history already, and who are simply looking to improve it.

The leading credit building cards offer a slightly lower APR than their bad credit counterparts and offer some other perks, such as 0% on purchases, 0% on money transfers, 0% on balance transfers and even cashback on all purchases. Again, used wisely, these cards can prove a great tool for improving your credit and enabling you to access more competitive (and rewarding) credit in the future.

If you are building credit or repairing a bad credit rating, you must make your monthly repayments on time and remain within your credit limit. Failure to do so will further harm your credit rating, and issuers will be less likely to offer you credit in the future.

Balance transfer credit cards

Balance transfer credit cards let you transfer one or more high-interest credit card balances onto a credit card with 0% interest for a fixed period. The market-leading balance transfer cards charge a balance transfer fee for such a service, which is usually a small percentage of the balance transferred. There are fee-free balance transfer cards available, but these often offer a reduced interest-free duration. There is usually a limited window of time to transfer balances to the new card – and any transfers that occur outside of this period could incur higher fees or interest payments.

If used correctly, balance transfer cards can be a cheap way to access credit and to repay a credit card debt, or indeed several debts. It is advisable to have a firm repayment plan in place from the moment you get the card. This will ensure that you repay your balance before the 0% introductory offer ends, otherwise, you may be left with debt at a higher APR.

Also, while most balance transfer cards offer a comparatively long period of interest-free credit, it should be remembered that this is only for balance transfers. If you use your balance transfer card for spending, you will often find that the 0% period on purchases is much, much shorter, meaning that you will be paying interest on those purchases much sooner. If you need to spend on your credit card while paying off a balance transfer, it’ll be better to get a balance transfer & purchase card which offers a lower 0% duration than the marketing-leading cards. They often cover both balance transfers and purchases for the same period.

Business credit cards

As the name suggests, these credit cards are exclusively for business owners, whether this is in the form of a sole trader, limited liability partnership, or director of a large business with hundreds of employees.

Business credit cards look and feel the same as conventional cards, but can help to separate business expenses from personal. They can also help business owners with their cash flow, as many such cards offer an interest-free period between spending on the card and when the repayments become due. Furthermore, many business credit cards offer such perks as cashback on purchases, points towards flights or other travel-related benefits or free purchase protection.

Another benefit of business credit cards is that additional cards can be ordered for employees of the business. Usually, these additional cards can be assigned different budgets and limits, allowing greater freedom for employees and a degree of control for employers.

Many business credit cards charge an annual fee (though not all), so it’s important to spend some time to work out whether any rewards and benefits will actually work out in your favour.

Cashback credit cards

Cashback cards let you earn a percentage of your credit card spend in the form of cashback. Each card has its own qualifying criteria and different rates. For example, some will give you 1% cashback at a particular outlet and 0.5% elsewhere, whereas others will offer 10% on specific purchases at specific stores and 0.5% elsewhere.

Some cashback cards charge an annual fee for their use, so it’s important to consider your own ‘normal’ spend on your credit card. This will help you to see whether the cost of the card itself (in the form of the annual fee) is worth the cashback you are likely to receive in any given month.

And finally, cashback cards typically have a higher APR than other non-reward cards, so you should only get one if you’ll always pay your monthly credit card balance in full. If a balance is left to roll over for a month, the annual fee and the enhanced APR will probably eat up any cashback you will earn for the year.

Low-interest credit cards

Low-interest cards offer a low-interest rate for the lifetime of the card – but the rate is always ‘variable’, which means credit card issuers can amend the rate at any time.

These cards can be useful for those who want a credit card to spend and pay off the balance over a period at a low-interest rate.

Low-interest cards offer very little in the way of perks or benefits compared to balance transfer, purchase or rewards cards, though some do offer a comparatively small window of 0% balance transfer, while some offer cashback incentives.

Some low-interest cards charge a fee, and this should be taken into account when working out which credit card is best for you. If you plan to only use your card on occasions, paying an annual fee for the privilege may prove to be more expensive than a card charging a higher APR.

Prepaid credit cards

Prepaid cards are not credit cards at all, as funds need to be loaded onto the card before it can be used. They are accepted by merchants in the same way as credit cards, both at home and abroad, and can be a great way to budget and avoid unwanted debt.

There’s a huge number of prepaid cards on the market, from those that duplicate the services offered by a conventional bank account, those that are specifically designed to improve your credit rating, to those that hold multiple currencies for travellers.

There are several fees associated with prepaid cards, which you should thoroughly investigate before applying:

  • Setup fee – A one-off payment during the application process

  • Monthly fee – A recurring monthly payment for the services the card offers

  • Transaction fee – A fee charged for any purchases made using your card, usually with different rates for home and abroad

  • ATM fee – A fee charged for using your prepaid card at the cashpoint – and again, this fee will usually be different depending on whether it’s a domestic or international ATM

  • Dormancy fee – A fee if your prepaid card remains unused for a specific period.

Reward credit cards

There are a host of reward cards on the UK credit card market, which include the cashback and airmiles cards already mentioned. Further to these cards, some reward cards offer incentives to those who spend on their credit card at specific retailers. More often than not, the rewards offered either come in the form of a points-based loyalty scheme (for example Tesco Clubcard and Sainsbury’s Nectar Points) or in discounted goods at department stores (for example the M&S and Debenhams cards).

Points-based loyalty schemes

These cards are most commonly offered by supermarkets (who have often become banks in their own right) or department stores and offer the cardholder the opportunity to collect points wherever they use their card.

These cards usually come with some kind of introductory incentive, giving you the ability to collect a big chunk of points. This can either be through an enhanced earning rate for a few months or if you spend a certain amount within a fixed period (£1000 within 3 months, for example).

The rate at which points are accumulated differ (sometimes quite considerably) depending on the card issuer, and also where you use your card. For example, supermarket spend may attract a rate of one point per pound spent, while the same supermarket petrol station may attract a rate of 2 points per pound.

Perhaps the most important factor when considering which loyalty card to choose (presuming that you do not mind which store you shop at) is what rewards you can redeem with your hard-earned points, and how much you have to spend in order to achieve the reward you want.

Travel credit cards

Travel cards incorporate a wide range of credit cards which offer you some kind of benefit or reward whenever you spend money abroad. The type of rewards offered differ from card to card but can include airmiles, flight discounts, upgrades or hotel stays, to name but a few. 

Other credit cards that aren’t specifically dedicated to the traveller can still offer such benefits as free transactions abroad, fee-free travel money or free ATM withdrawals overseas.

Some of the more specialised travel cards do charge an annual fee, so it’s advisable to work out how much you are likely to spend on your credit card, both home and abroad. You can then work out whether paying an annual fee will be worth any rewards you would receive.

Best credit cards 2020

When looking for the best credit card, the key features and statistics that you’re looking for can vary a lot between the different categories. Here are some features to look for in the best credit cards:

  • Long 0% balance transfer period (more than 30 months)

  • Fee-free 0% balance transfers (usually for a shorter period)

  • Long 0% interest period on purchases (greater than 25 months)

  • Cashback for spending at shops or services that you use regularly

  • Rewards (airmiles or similar) for spending at shops or services that you use regularly

  • Long-term low APR (below 10%, and possibly as low as 6%)

  • The ability to build up your credit score

  • No fees on foreign transactions (and sometimes foreign cash withdrawals too)