For many of us, our parents’ generation frowned upon just about any form of credit. Not so these days with cards being part of everyday life. Choosing a credit card, like any other financial decision, needs to be undertaken responsibly. Many of us are less than realistic about our financial behaviour. You should be sure that you can meet the likely monthly repayments before entering into the agreement. Failure to do so may jeopardise your credit rating and thus your ability to obtain a mortgage or other vital credit in the future. Assuming your goals are realistic, you need to apply the criteria relevant to your intended use of the card. If you want it solely to transfer a balance from an existing card in order to reduce the APR, look carefully at the balance transfer deals on offer (be sure to check their longevity – many expire and revert to a higher than usual rate at the end of the balance transfer term); if you want the card simply for purchases, look at the retail interest rate. In general, there are a number of important assessment criteria.

APR

The APR (annual percentage rate) determines the interest rate you will pay on a yearly basis. The conditions under which this interest will be payable and the applicable rates will vary widely. Rates usually vary depending upon the circumstances and the card issuer. Forgetting any promotional and balance transfer offers for a moment, in general you will pay interest when you carry forward a balance beyond the payment date on the card statement. UK credit card issuers must by law clearly state the applicable APR in writing to you. This is usually provided on the statement with separate letters being issued when underlying rates change. Different card types tend to have different rates associated with them. As an example, store cards almost always come with higher rates than credit cards.

Loyalty Schemes

It’s a tough world out there if you are a credit card issuer. With so much competition, many are now trying to distinguish themselves from the crowd by including a loyalty scheme with the card. These may offer points collection and redemption options; frequent flyer ‘mileage’ options; cash back and other incentives. Some of the UK’s best known retail and supermarket chains have joined forces with existing credit card issuers and are offering branded cards with in-store collection and redemption schemes.

Whatever the scheme, it is well worth looking at the rate at which you are accumulating loyalty points (the earnings rate); the real value of these points and the ease with which and locations at which they can be redeemed for goods or services. Also look at any time limits. To make a loyalty scheme economically viable, most issuers have to rely upon the fact that many of us will never get around to redeeming the points. A short time limit on redemption improves the percentages and profit for the card issuer! Many schemes offer vouchers for major stores, both online and in the high street. Others may offer a catalogue of goods for which points may be redeemed. Some of these are excellent and include the latest in films or gadgetry whilst others are simply job lots of items that haven’t sold elsewhere!

Card Design

As more card providers leap on the branding bandwagon, card designs are becoming more and more innovative. Some are even issuing cards with a distinctive shape. Others offer cards with a choice of images. Whilst this is hardly a deciding factor for most people, if you find a couple of providers where all other factors are similar, having a picture of your favourite breed of dog in your wallet may clinch the deal. On a more serious note, many people will opt for the prestige of a gold or platinum branded and coloured card and the industry has reacted to this by re-branding many hitherto mainstream cards in these livery styles.

More Factors

It is impossible to cover all of the factors inherent in choosing a card issuer in an article of this length. Other elements to consider include:

•The APRs applicable to each of the retail, balance transfer and cash transaction types;

•The method by which interest is calculated including whether it is fixed or variable rate;

•The interest fee period following a purchase made on a card before it starts to attract interest;

•Fees, late payment and over credit limit charges;

•The credit limit and the percentage of this available for balance transfers and cash advances;

•Any fraud and / or payment protection offered, its coverage and associated costs; and

•Whether the card is likely to be accepted at your favourite retailers (this is particularly relevant for charge cards because of their high transaction costs to the retailer)

Conclusion

Always analyse your financial needs and position honestly before entering into any form of agreement. A credit card is no exception: failing to make the payments can wreck your credit rating. Assuming that a credit card is a sensible choice, you should take a look at the various card issuers in the context of your own specific requirements. If you have no desire to make balance transfers, offers in this area will be irrelevant and you should focus more on the retail APR. Be aware of the card provider’s costs and terms in all major areas including the rate at which interest will be charged for the relevant transaction types and the minimum monthly payment. A highly competitive industry has driven card issuers to offer ever more attractive packages, not least of which are the growing number of loyalty schemes!