A credit card can be a very useful, but they get lots of people into trouble.  So what do you need to look for when choosing a credit card?  Firstly, here’s how a credit card works.  When you make a purchase with a credit card you are borrowing the money from your credit card company.  In exchange for this service, the company will charge you interest on the borrowed money. Each month you receive a statement showing your outstanding balance and the amount of interest you will be charged should you fail to pay back the balance in full.

When choosing a card it’s important to check the card’s APR, or Annual Percentage Rate.  This figure is the amount of interest you will pay on the balance of your credit card each year.  Credit card companies will often quote the “typical” APR - this means that the rate advertised is what they will offer to about two thirds of people who apply for a card.  When you apply, your application is assessed and depending on the results you may be offered a card with a different APR.  Always check the actual rate at which you are being offered a card, companies can set the APR as high as 30% for people with bad credit.

Credit card companies will often advertise interest free balance transfer and purchase periods.  These terms describe the length of time the company will let you make purchases with the card and transfer outstanding balances from other cards without charging you any interest.  Interest free periods can often be a useful way to save money, particularly if you have an outstanding credit card balance elsewhere, or if you intend to use the card a lot.  Always remember though, most companies charge a fee to transfer a balance onto your new card so always check this beforehand.

There are, of course, some cards that have completely different offers.  Cards run by charities will often give a percentage of money spent on purchases to charity.  Others will offer you cashback (giving a tiny percentage of the money you spend back to you) or free gifts after spending a certain amount on the card.  Some cards will even offer you a choice of design for the front of your card!  Again, these are things to consider before you make your decision.

Finding the right card is a case of determining your individual needs and then finding the card that gives you the offers you’ll need the most.  If you are currently paying interest on a credit card balance, a long interest free balance transfer period is useful.  On the other hand if this is your first card you might simply want to look for the lowest APR.  If you intend to use your card often an interest free purchase period will help, if only for emergencies then it’s not essential.  There are plenty of credit cards to choose from so you’ll be sure to find the right one for you.

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