Choosing and applying for a credit card

  • 29 July, 2020
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Choosing and applying for a credit card

This page tells you what to look out for when choosing a credit card including comparing cards. It tells you what happens when you apply for a credit card and what you can do if your application is refused.

Choosing a credit card

There are hundreds of credit cards available, so shop around to get the one that suits you best.

Start by thinking about what you want to use the credit card for. This could be to buy things on line or on holiday, to pay your bills or to spread the cost of a purchase. However you choose to use your card, the key thing is whether you will be paying off what you owe every month or spreading repayments over a period.

If you can pay the balance off in full and on time each month, you can take advantage of the interest free period. In this case, the interest rate may not be so important but you may want to look at cards with other incentives like cash back. Even if you think you will be able to pay the balance in full each time, it’s worth planning what you’ll do if you can’t.
If you want to use the card for borrowing and you won’t be paying off the balance each month, you will usually have to pay interest. In this case, you may want to choose a card with a lower interest rate. Don’t forget to make sure you can afford a regular repayment.

If you’ve applied for credit cards before

Applying for too many cards or regularly switching cards can affect your credit rating. Each time you make an application it’s recorded on your credit file. Your file will also show if an application is refused. When new providers check your credit file, it can look like you have lots of cards already or that no one else wants to lend to you. Find out more about your credit rating and how lenders decide to give you credit.

If you’re struggling to pay what you owe on a credit card, find out how to deal with the debt.

Checklist of what to look out for when choosing a credit card

Here’s a checklist of some things to look at when you choose a credit card:

•          Annual Percentage Rate (APR). This is the cost of borrowing on the card, if you don’t pay the whole balance off each month. You can compare the APR for different cards which will help you to choose the cheapest. You should also compare other things about the cards, for example, fees, charges and incentives

•          Minimum repayment. If you don’t pay off the balance each month, you will be asked to repay a minimum amount. This is typically around 3% of the balance due or £5, whichever is higher

•          Annual fee. Some cards charge a fee each year for use of the card. The fee is added to the amount due and you will have to pay interest on the fee as well as on your spending, unless you pay it in full

•          Charges. Check in the credit agreement what other charges apply to the card. You will usually be charged for going over your credit limit, for using the card abroad and for late payments

•          Introductory interest rates. This is where you start off paying a low rate of interest or none at all. The rate then increases after a certain amount of time. For example, it could increase after six months or from a certain date. You’ll often see an introductory rate for balance transfers. If you are comparing cards, look at how long the introductory rate lasts as well as the interest rate it changes to at the end of the introductory period

•          Loyalty points or rewards. The points add up depending on the amount you spend and you can then use them to buy goods. Sometimes this is in particular shops. Check how and where the rewards can be used and think about how likely you are to use them

•          Cash back. This is where you get money refunded to your card, depending on how much you spend. Check that you are likely to qualify for the cash back. For example, it may only apply if you pay your balance in full each month. A lower interest rate may be a better deal.

Comparing cards

Key information you should get

When you are given information about a credit card, it should include a summary box with standard key information about the card. This should include the interest free period, interest rate and other charges. This is so that you can easily compare different cards. You can find more information about the credit card summary box including an explanation of what all the terms mean, on the UK Cards Association's website at:

Using a comparison website

You can use a comparison website to see what different credit card providers are offering. This can help you choose the right card for you. There are lots of comparison websites and not all credit cards will be shown on all sites. So you may need to look around for a particular product.

Applying for a credit card

You can apply for a credit card:

•          On line

•          By post

•          By phone

•          At a bank or building society.

You will have to fill in a form and the credit card provider will check your credit record with a credit reference agency, to see if you are credit worthy. Your credit record shows information about how you handle your finances, such as your bank account and any other borrowing you have. It tells the provider whether you are a good payer and about any court orders you have had in the last six years. You can check your credit record yourself by contacting one of the credit reference agencies. There is a small fee.

When you fill in the application form for a credit card, be careful to make sure all the information you put is correct. If you are not sure about how to complete the form, ask the credit card provider for help. You will have to sign the form to say all the information is correct and any false information you give may be seen as fraud.

Signing a credit agreement

If your application is accepted you will be asked to sign a credit agreement. This is a legal document which sets out what you and the provider are agreeing to. The credit agreement includes details such as how much you can borrow, how much and when to repay, the interest rate and charges that can be added, your rights and responsibilities under the agreement and any other conditions that apply to it. Always try to read the small print so you know exactly what you are agreeing to.

Additional card holders

You can apply for additional cardholders to have permission to use your card. But remember, if you do this you are responsible for paying off whatever they spend on your card. It’s a good idea to agree some rules with any additional card holders about when they can use the card and make sure they tell you about their spending. Otherwise, you could go over your credit limit or have more to pay off than you expected.

If your application is refused

Providers don’t have to give you a credit card. Your application may be refused if your credit score is low or you are not a good risk. Ask the provider to tell you which credit reference agency they used if you want to check your credit file. Although credit card providers can decide not to give you credit, they are not allowed to discriminate against you when they make their decision. This means they aren't allowed to refuse to give you credit just because of your race, sex, disability, religion, and sexuality or where you live. If you think you were discriminated against when you applied for a credit card, get advice from an adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click nearest CAB.