Compare the Best Credit Cards of November, 2024

What is a credit card?

A credit card is a bank card issued by a bank or financial services company that allows the holder to borrow funds to pay for goods or services from anyone that accepts card payments. For this service, the credit card holder agrees to repay the amount borrowed plus agreed interest and any attached service charges either in full or spread over time.

In most cases, this line of credit can also be used to provide cash advances from ATMs, though sometimes at a different interest rate and with different terms.

How do credit cards work?

When you apply for your credit card, the lender will set a limit on how much money you can borrow depending on your current credit utilization and credit history. You can make purchases up to that limit. If you pay off that amount when the bill comes, you can reuse that credit.

You can use your card, in most cases, anywhere cards are accepted. At the end of every billing period (usually monthly), the credit card holder receives a statement detailing the transactions made, any repayments you have made, the balance, and the minimum payment required to maintain the credit.

Why get a credit card?

One of the best reasons to get a credit card is to build credit. When you use a credit card responsibly you can build your credit history and improve your credit score by showing that you’re someone who pays their credit card every month. Some of the other reasons to get a credit card are:

• There are often perks involved with using a credit card. Such things as one-time bonuses, frequent-flier miles, and reward points are commonly offered to credit card users.
• The credit card provider offers a buffer between you and the merchant/supplier should anything go wrong.
• There is a delay between a purchase and the money leaving your bank account. If you have an interest-bearing checking account, over time that will result in significant money saved.
• Often purchasing with a credit card provides a better warranty on goods than that offered by the manufacturer.
• You can take advantage of 0% APR and low-interest offers to spread the cost of expensive purchases.

What are the different types of credit cards?

There are many types of credit cards, though most work the same way. Among them are:

• 0% APR and low-interest credit cards
• Business credit cards
• Student credit cards
• Store credit cards
• Secured credit cards
• Co-branded credit cards
• Balance transfer credit cards
• Rewards credit cards
• Travel credit cards
• Prepaid credit cards (these are cards where you pay the balance beforehand and then use it)

What does APR mean on a credit card?

The APR is the Annual Percentage Rate of the interest charged on a credit card account. Interest is usually only charged if you do not clear your balance at the end of the month. For example, if you had an APR of 10%, and you had $100 on your credit card when the month rolled over, $10 would be added to your balance.

How to avoid interest on a credit card

The easiest way to avoid paying interest on a credit card is to pay off your balance in full each month.

For bigger purchases, many providers offer 0% interest for a limited period (usually 3-18 months) to new customers while others offer low-interest rates for long periods. You won’t often get these offers for your first card if you have no credit history.

Top tips for building credit on a credit card

Having a good credit score is important if you need to apply for a mortgage, bank loan, car finance, or other credit. Owning and using a credit card every month, paying off your purchases, and staying well within your account limit will all help your score to climb.

The best way to build credit is to never miss a payment. A missed payment will harm your credit rating, even if you only forgot to pay by a few days. Paying off your balance in full is the safest way to build credit, though some people argue that you’ll build credit faster if you leave a little balance on your card from time to time, as it shows potential lenders that they can make money from you. This is only something to consider if you have no other forms of credit – personal loans and student loans will show that you are actively paying off a balance.

Keeping your credit usage under 30% of your limit is also beneficial for improving your credit score. The lower the percentage the better with something 10% or under being ideal. Note that this can be of your entire credit utilization, not just per card.

For example, if you have 3 cards each with a $2,000 limit, you have $6,000 total credit. To keep your credit below the 30% threshold, you’d need to hold a balance of less than $1,800 across all three cards. (For example card 1: $800 balance, card 2: $500, card 3: $500.)

How many credit cards should I have?

According to Experian's State of Credit 2019, the average American adult has three credit cards but how many you have is a question just for you and your situation. Certainly, if you manage multiple card accounts you get the most advantage of rewards and interest-free lending but not everyone can do this. For some, keeping control of one account is demanding enough.

Which credit card is best for me?

To find the best credit card for you you need to go through the following process:

1. Find out your credit score: better card accounts are available for those with a higher score. If it is lower than expected this allows you to find out the problem areas and rectify them – or at least avoid applying for cards that are likely to reject you.
2. Use a comparison table to see what’s available and may suit your circumstances.
3. Examine the specific APRs of those you are considering applying to, 0% and low-interest periods, and rewards to find out which are best.
4. Apply for the card that offers you the most at the least cost. (Make sure you don’t apply for more than one at a time.)

How do credit card payments work?

At the end of every month, your credit card company will send you a statement showing all the transactions on your card in the payment period. It will also show you the total you owe, the minimum payment required, and the date that payment must be made.

If you pay at least the minimum amount before the deadline your credit score will be unaffected (or improve) but the total you owe will rise, as will the amount of interest you are charged. If you clear the balance every month you will not be charged any interest. Most credit card payments are paid by automatic payment from your bank account (the best way to ensure you don’t miss a payment), but you can also pay manually with your debit card.

What credit score do I need to apply for a credit card?

There is a card on the market for just about anyone whatever their credit score, but the better your score the better the cards are likely to be. If your rating is in the poor to fair range (300-690 on the FICO scoring system), then you may want to begin with a retail or gas card as the qualification is easier and you can build your credit score for better cards in the future.

Failing this, a prepaid credit card is a good option. While you fund this card in advance, it will allow you to build your score.

With a higher score, you have many more options, most of which will offer rewards of some kind but the credit score will differ from card to card and provider to provider.

Does applying for a credit card hurt credit?

There will usually be a small drop in your credit score when you apply for a new card but it is minimal provided you are accepted. It is also short-lived and not likely to impact your score after a year or so.

How to get pre-approved for a credit card

Whenever possible, try to seek pre-approval for a credit card so you can avoid being rejected, which damages your ability to borrow.

Many credit card issuers have pre-approval offers as part of their marketing strategy. You can also ask a company for prequalification which will result in a soft credit inquiry that does not impact your credit rating. If you take things further and apply for the card then a hard inquiry will be made which will deduct a few points but, as we have seen, not many and not for long.

Pre-approval does mean that your application is likely to be successful but it is not guaranteed.

Shop and compare best credit card rates

There is a bewildering number of credit card offers out there so do your research carefully and make sure you know exactly what is involved before signing any credit agreement.