What to consider before you get a new credit card

Britain’s first credit card – Barclaycard – was launched in 1966 and quickly won over a sceptical public unsure about spending someone else’s money.

Nearly 60 years later, millions of us think nothing of spending on credit every day.

Banks make vast sums through fees and steep interest rates from customers who do not keep on top of repayments.

But when used wisely, credit cards offer points, perks and extra protections not afforded to cash or debit cards.

So how can you take advantage of the benefits of credit cards while avoiding the pitfalls? 

Telegraph Money asks the experts. 

Jump to:

• How to apply for a credit card
• How do I check my credit score?
• Section 75 and extra protections
• Things to consider before you get a new credit card
• Types of credit cards

How to apply for a credit card

Almost every bank will offer several different credit cards each with different features, terms and spending limits. You typically have a choice of applying online or in person at a lender’s branch. 

The provider will carry out a “hard” credit check when you apply, which will include checking your credit file. 

If approved, different providers will set different credit limits depending on your financial situation.

You need to be at least 18 to apply for a credit card while some cards require you to be at least 21. 

How do I check my credit score?

Credit reference agencies compile information about how well you manage credit and make your payments. By law, all credit reference agencies have to give you a copy of your credit report for free. Your report can differ slightly between agencies depending on the information collected and each has its own scoring system.

It is worth getting a copy of your credit report from all three of the main agencies: Experian, Equifax and TransUnion. You can get a report for free by signing up but will then fall back onto a paid subscription so make sure to cancel in time. 

If you prefer to receive a paper copy, contact the agencies directly here:

• Equifax
• Experian
• TransUnion

Credit checking companies, such as ClearScore, use data from the agencies to give you access to your score for free but the data may be less up-to-date than going direct. 

Section 75 and extra protections

One of the best perks of using a credit card is the protections afforded under Section 75 of the Consumer Credit Act 1974.

Transactions between £100 and £30,000 are covered by the Act, which lets you raise a claim for a breach of contract or misrepresentation by the supplier of goods or services. 

That means if you bought something using a credit card and it didn’t arrive or wasn’t as advertised you can make a claim. Crucially, your credit provider is also responsible (as well as the retailer) if something goes wrong, so you are in a strong position to get your money back. 

Things to consider before you get a new credit card

What will I be using my credit card for?

There are different cards for different uses, so it’s important to think about what you are going to use the card for. 

James Daley, of consumer group Fairer Finance, says if you want to transfer a balance from another card, you need to be looking at the longest period you can get a 0pc deal for, but also keeping an eye on the fee. 

“There are cards that don’t charge any fee at all, but obviously they tend to have shorter interest-free periods,” he says.  

“There are cards with longer periods, of over two years, but they tend to come with a fee of 3pc or 4pc, sometimes higher.”

Should I get a credit card or a loan?

Credit cards can be cheaper than taking out a personal loan, but the 0pc interest period tends to be shorter.

Daley says: “Taking out a loan is better for where you think you’re going to need longer to pay it off and it’s a bigger amount, like a car, for example, or some other significant purchase. 

“Credit cards can be really good for modest amounts of borrowing, which you think you’re going to be able to pay back over a couple of years, like a holiday.”

Is my authorised overdraft cheaper than getting a credit card?

Your authorised overdraft is almost never cheaper than getting a credit card, Daley says.

There are banks that have a small interest-free overdraft, like £100 or so, but most overdrafts will charge interest of 25pc to 40pc.

Daley says: “They tend to be much more expensive ways of borrowing over the long term, so they’re really only good for short-term amounts of borrowing.” 

For example, if you’re paid your salary on the first of the month, and have run out of money on the 25th, an overdraft can help you fill the gap before your next pay cheque. 

But it’s not going to be a good way to borrow any significant amount of money for the long run. 

An exception to the rule is for students, who tend to be offered bigger overdrafts and longer interest-free periods.

Can I make repayments?

Daley recommends having a plan for paying off your debt. It is important to pay off the credit card balance in full by the end of the interest-free period. 

Otherwise, you can get charged interest as high as 20pc. 

Setting up a regular  direct debit can help you pay off the balance and avoid missing payments.

Types of credit cards

Reward credit cards

This type of credit card rewards you for using it, for example with travel miles, cashback or store discounts. 

It often comes with an annual fee and high interest rates and you may need a good credit score to get approved, according to Experian.

American Express, Amex, is perhaps the best known provider of reward cards, with an array of cards to suit frequent travellers, high spenders, and so on.

Balance transfer credit cards

If you already have a credit card, you may be able to reduce the amount of interest you pay by moving your existing card debt to a balance transfer card, typically for a fee.  

Often these cards offer a 0pc or low interest rate for a set period. You may need a high credit score to get one. 

Credit builder cards

These cards can help you build your credit history if you have a low credit score. They usually have low credit limits and high interest rates as lenders consider applicants to be high risk. 

Travel credit cards

If you are travelling, a credit card can help you reduce the cost of using a card in another country.  

Purchase credit cards

These cards usually have an interest-free period, which can make them a cheap way to borrow to spread the cost of a big purchase. To keep the 0pc rate, you will need to meet the minimum payments and terms.