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A guide to the different types of credit cards
Are you baffled by the sheer number of different credit cards out there? Well, we understand how overwhelming it can be. There’s a whole host of different types of credit cards and they’re all suited to different purposes, so it’s no surprise if things get a little bit confusing.
To make sure you’re taking out the right credit card for your needs, it’s a good idea to clue yourself up on what’s what. That’s why we’ve listed all of the different credit cards out there, and you can find details of each below.
Get clued up on credit cards
Credit cards for bad credit
These kinds of credit cards are aimed at helping would-be borrowers who may have struggled with credit in the past. They are sometimes called credit builder cards, as when used responsibly, they can rebuild your credit history.
By spending on it and making at least the minimum repayment each month, your credit history will slowly start to improve. If you can clear the balance in full every month, you should, as this means you won’t have to pay anything in interest.
As these credit cards are for people with poor credit histories, they usually have a low credit limit and a higher interest rate.
The Ocean Credit Card (34.9% APR representative) is suitable for people who may have struggled with credit in the past. You could also find out whether you’ll be accepted before you apply with our QuickCheck feature.
Money transfer credit cards
With a money transfer card, you’re able to transfer cash from the credit card to your bank account. On a regular credit card, it’s not a good idea to withdraw cash as you’ll have to pay quite a high interest rate and charges.
On some money transfer credit cards, you will pay daily interest on the cash you withdraw until it’s paid back.
Some money transfer credit cards offer 0% interest for a number of months, which means you can withdraw cash from it and not pay any interest on it for several months. The better your credit history, the better the card you should be able to get. This means the money transfer cards with the longest 0% interest periods need you to have a good or excellent credit history to apply.
If you do transfer money from this card, it’s important to remember to repay what you borrow. If you’re taking advantage of a 0% interest period, aim to pay it back before this period runs out as you will be put on the standard rate once this ends – which could be very costly.
Although some may offer interest-free periods, you’ll have to pay a one-off fee to transfer cash from this credit card. This fee is usually around 1-3% of the amount you transfer.
Balance transfer credit cards
In many ways, a balance transfer card works in a similar way to a money transfer credit card.
The main difference here is that you move balances from other credit or store cards to this card so you’re only making one monthly payment rather than several. As you’ve moved the balances over to a new card, you can close the old ones, which can make things easier to manage.
Not only can this card make things easier to keep track of, but you could also end up paying less in interest this way. Many balance transfer credit cards come with a 0% interest period, which means you don’t have to pay any interest on the balances you move over for a certain length of time. Because of this, you can focus on clearing your debt as soon as you can without having to pay any interest.
Again, you should mark the date your 0% interest period ends in a calendar and aim to clear the balance before this date.
Like a money transfer credit card, a balance transfer card may come with a one-off fee to move the balance over. This is typically around 1-3% of the balance you move over.
Credit cards for purchases
This type of card is pretty much what it says on the tin. It’s best used when you’re making purchases, or perhaps for a one-off purchase where you want to spread the cost by paying it back over a few months.
Providing you pay off your balance in full within the period agreed by your lender (typically up to 56 days), you won’t have to pay any interest. If you don’t pay off the full balance, you will be charged interest on all your purchases for that month – not just the balance that you haven’t paid off yet.
You may find that some lenders offer long low-interest periods or 0% interest periods on purchases as a promotion. Generally, the longer the 0% interest period, the better your credit history must be if you want your application to be accepted.
While they may not be advertised as ‘all-rounders’, these credit cards generally offer a mixture of features. For example, you might find a card offering low interest rates on both balance transfers and purchases.
These rates may not be as low as you would find on a credit card specifically for purchases or balance transfers, but they can be useful if you plan on using it for a mixture of features (like moving your existing credit card balance over and using the card to spend too).
Some credit cards offer rewards when you spend on them. Depending on the type of rewards card you go for, you’ll receive points, air miles or cashback just for spending like you normally would.
The credit cards offering the best rewards are usually only available to people with above average credit histories.
It’s important to remember that these credit cards work in much the same way as a regular credit card. You’ll need to make at least the minimum repayment each month and stay within your credit limit to avoid charges or damage to your credit history.
Below you can find the most common types of rewards cards:
A supermarket rewards credit card offers you points to spend in a certain supermarket. A handful of the leading UK supermarkets have their own credit card, and they are best suited to people who are loyal shoppers at one store – rather than those who hop between shops.
You don’t have to spend at the supermarket your card is from to get rewards points. Normally, you’ll get the points from spending anywhere with the card, but you’ll only be able to spend the points you collect in the supermarket your card’s linked to.
With an airline credit card, you’ll be rewarded with air miles when you spend. Air miles can be used to cut the cost of flights, although they may only be with one specific airline. After a while, some airlines may have certain flights that you can pay for entirely with rewards points once you’ve gathered enough. Some of these cards offer bonus points when you sign up too.
If you’re a frequent flyer, particularly with one airline, this kind of credit card might be useful to you. Again, you don’t have to spend with the airline to earn air miles, as it’s your everyday spending that counts instead.
Some airline cards charge an annual fee, which means you pay them a set amount each year to access their benefits. If a credit card has this, it’s important to weigh up whether you’ll earn enough in rewards to cover the cost of the annual fee.
For every pound you spend on a cashback rewards card, you’ll get a percentage of that money back at the end of the year. For example, with a 1% cashback credit card, you’ll get £1 back for every £100 you spend.
Some of these cards offer as much as 5% cashback, but these are often reserved for people with excellent credit histories and there may be an annual fee too. Other credit cards might offer higher cashback for a number of months before going back to the standard rate.
When you take a regular credit card abroad, it’s likely that you’ll have to pay a fee to spend on it – which can be around 3% of what you spend. A travel card is specifically designed for spending when you’re out of the UK, so the fee is usually much cheaper. Some credit card providers don’t charge a fee at all, but you’ll need to have a good credit history to qualify for this kind of card.
Some of the exchange rates on these travel cards are better than you might find on the high street, so it may be worth considering this if you’re going away. Remember, you should aim to clear the balance in full at the end of the month as this way you won’t have to pay any interest.