How to get the best credit card?

Different people have different needs. Depending on who you are and your
circumstances, the best credit card deal for you will vary. I will take you
through the things you should be looking for, but for the best current deals
I suggest you check Money Savings Expert regularly
(http://www.moneysavingexpert.com).

Credit cards allow you to spend a certain amount of money at an interest
rate that will be charged every month. The spending amount that is available
to you can be seen differently. Some see it as an additional amount to
spend, some see it as a ‘risk-free' borrowing opportunity. Credit card
spending is not a ‘free' spending opportunity, as you will need to pay this
money back. This money does not work like a loan, as the amount available to
you is not all cash. However, it can be treated as a ‘loan' and this concept
will be explained later.

Other very important concepts that have to be understood before getting a
credit card, is 0% offers. There are two kinds of 0% offers: on purchases
and on balance transfers.
The first one allows you to spend the money provided to you by the credit
card without paying any interest for a certain amount of time. So, for
example, if the credit card gives you a limit of £500 for three months, then
you can spend £500 against this credit card and not be charged interest for
the first three months since the credit card was opened. However, once this
period of time expires, you will be charged the credit card interest rate.
This interest differs depending on the credit card, so if you intend to pay
this interest, then you ought to look for the lowest interest rate
available. Paying interest can be avoided, unless you have already overspent
too much and are using credit cards to pay off other credit card interest.
In this case you should call some of the debt consolidation companies and
try to get some your credit card debt written off. Another reason why you
might be in the position of paying interest is because you forgot when your
‘0% free time' ended. If this is the case, you will be informed about this
with your first bank statement. Transfer your balance to a different bank or
pay the debt off and avoid any further interest payments.

For those of you who don't have interest payments, you can take advantage of
the 0% purchasing and make some money.
You need a good credit history record to make this work and you also need to
be disciplined. The easiest method is to do all of your normal spending
against the credit card, while putting the money that is coming in into an
interest-earning savings account. For example, if your credit card company
lets you borrow £2,000, and you have £1,000 coming in as a salary every
month, then put the £1,000 into a savings account and do all of your
purchasing with a credit card. There are a few things to watch out
for: credit card companies will charge you for cash withdrawals; your cash
limit is much lower then the full available credit; and choose a savings
account from which you can withdraw easily. At the end of the 0% purchase
period, you will need to return all the money that you have spent against
your credit card. You should have that amount available in the savings
account by then, plus interest.
The interest gained is your earnings for this transaction.
You can earn even more if you chose a credit card with a cashback deal. This
deal will pay you interest on all of your purchases made with the card.
However, you should remember, that this is a money-making technique, rather
then a ‘spend more' opportunity. There is a more complicated trick of making
money from credit cards, details of which are outlined by Money Saving
Expert (2006).

If you are making money from the credit cards, there is no need for you to
get card protection insurance, as you should have enough money to pay off
the credit card debt at any time. At the end of the 0% purchasing period,
you can also transfer the balance to a different card provider.
This is known as 0% balance transfer, but you will be charged a fee for
these transactions, usually around 2%.
However, these fees vary, so you need to check the conditions. There are a
few things to watch out for: the credit limit offered by your bank also
includes your purchases. For example, if the new credit card offers you a
£2,000 limit, with 0% balance transfer for 12 months and 0% on purchases for
three months, and you have transferred £1,500 from your old credit card, you
only have £500 to spend on this credit card. The second thing to watch out
for is your credit score. "Most lenders' scoring systems aren't
sophisticated enough to detect that you're playing this free-cash game. Yet
multiple applications, especially at the same time, coupled with high
outstanding debts, even at 0%, will diminish your ability to get competitive
credit, so the most important thing is to spread card applications out"
(Money Savings Expert, 2006).

However, if you are in the position where you are already fighting the
interest payments, as has been mentioned before, the best thing to do is to
call debt consolidation experts. In any circumstances it is best to pay off
the most expensive credit and store cards first (i.e the ones that charge
the highest interest rates). Furthermore, avoid opening any new credit cards
to pay off the debt. Instead transfer your high-interest debt to lower
interest rate credit cards. For example, if your credit card interest rate
is 16%, while your store card rate is 25% per month, transfer the store card
balance over to the credit card.

Whatever your circumstances, when you do open a new credit card always look
for the longest 0% balance transfer and 0% purchase period, lowest transfer
fee and interest rate charged afterwards. The limit offered to you will not
only depend on your salary and credit rating, but also on the company that
you go with.

Finally, do not forget – don't play the credit card game if you cannot
control it or have a high debt already.

References

Money Savings Experts 2006 "Card Trick" [Available from]:
http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid
1076883546,34894 (Accessed on: 10/11/06)

Money Savings Experts 2006 "Card Card Shuffle" [Available
from]:
http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid
1102335753,51771 (Accessed on: 10/11/06)

Money Savings Experts 2006 "Credit Card Newbie MoneySavers Guide" [Available
from]:
http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid
1103212597,43859, (Accessed on: 10/11/06)

Copyright © 2006 Verena Veneeva

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