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Last updated
August 15th 2022

What is a credit card

Credit cards are palm-sized rectangles of plastic - or sometimes metal - that allow you to borrow money as and when you need it to pay for goods and services.

You get an agreed maximum credit limit you can borrow at once and there's a minimum monthly repayment, but are free to borrow or repay anything you like within these limits.

How credit cards work

Credit cards work by linking the physical card, or account number for online spending, with the borrowing facility - that means when you pay with a card, it's your provider that pays the cash to the merchant.

On a technical front, this is done when the merchant's payment terminal reads your account information from the chip or the magnetic strip on your card, then sends a request to your provider to check your account is large enough to cover the purchase.

When buying online, you need to enter your account details yourself, along with your security code, to make a purchase - although many services will then remember that to speed things up next time.

A credit card doesn't help you spend beyond your means. When used wisely, it's a tool to make purchases, earn rewards or build credit for better deals in the future."

How to choose the best credit card for you

Our featured deals

Our editors have picked out three of our best credit card deals we have on offer

Editor’s pick
Our chosen balance transfer credit card
Card
Santander Everyday No Balance Transfer Fee Credit Card
Balance transfer term0% for 21 months with no fee
Balance transfer feeNo fee
Rep APR21.9% APR

Representative example: The standard interest rate on purchases is 21.9% p.a. (variable), so if you borrow £1,200 the Representative APR will be 21.9% (variable).

This card hits the sweet spot with a lengthy interest free period and no fee for balance transfers. It offers cashback abroad, and real rates, so the APR you see is the one you get if approved. You can also get up to 15% cashback with select retailers.

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Editor’s pick
A dual credit card with £20 cashback
Card
Barclaycard Platinum Balance Transfer & Purchase Credit Card
Balance transfer term0% for 22 months with a 2.9% fee
Purchase term0% for 25 months
Rep APR22.9% APR

Representative example: The standard interest rate on purchases is 22.9% p.a. (variable), so if you borrow £1,200 the Representative APR will be 22.9% (variable).

Get flexibility with an added bonus with this dual credit card. Not only do you get over 20 months interest free on both balance transfers and purchases, but you can get £20 cashback if spend over £250 within the first three months.

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Editor’s pick
Our chosen 0% purchases credit card
Card
Sainsbury's Bank Dual Offer Credit Card
Balance transfer term0% for 24 months with a 2.88% fee (£3 min.)
Purchase term0% for 24 months
APR21.9% APR

Representative example: The standard interest rate on purchases is 21.95% p.a. (variable), so if you borrow £1,200 the Representative APR will be 21.9% (variable).

Get two for the price of one with this dual credit card. With two years interest free on both balance transfer and purchases, you get the flexibility you need whether it's to pay off debt, or spread the cost of purchases. If you need to, you can do both.

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Types of credit cards

Types of credit cards
Balance transfer
Balance transfer

Balance transfer cards let you to move debt from one or more cards to a new one and pay it off at a lower interest rate. Many offer lengthy interest-free periods, so all your repayments go towards paying off your debt, rather than interest, so you'll pay off your balance quicker and save on interest at the same time.

0% purchase cards
0% purchase cards

0% purchase cards offer lengthy introductory interest-free periods, so you can make large purchases with your credit card and spread the cost over several months. As long as you pay off the full balance before the end of the interest-free period, you won't pay any interest.

Money transfer cards
Money transfer cards

Money transfer cards allow you to move money from your new card directly to your bank account. You can then pay for goods and services using your debit card or withdraw cash from an ATM. These also often have long interest-free introductory periods, so you you can spread the cost of your spending over several months without paying interest.

Credit building cards
Credit building cards

Credit building cards are aimed at individuals with no previous history of borrowing or those with poor credit histories. These cards are easier to get and usually come with high interest rates and low credit limits.

Travel credit cards
Travel credit cards

These cards are aimed specifically at regular travellers. They don't charge foreign transaction fees, so you can use them even when you're travelling abroad. If you often find yourself in Europe or further afield, a travel credit card could save you a lot of money.

Rewards cards
Rewards cards

Rewards credit cards offer you bonuses for using them. The rewards tend to vary from card to card, but some of the most common rewards offered include vouchers or in-store points and air miles. Some provide cashback every time you spend on the card. Many of these charge annual fees and typically have high APRs.

How to compare credit cards

With so many different types of credit cards to choose from, it can feel overwhelming when making a choice. But don't worry, carefully considering the following key factors will make it much easier for you to pick the right one.
Why you need a credit card

The reason you're looking for a credit card will go a long way in helping you decide which type of card you should compare. Different types of cards are designed for specific purposes, whether you want to pay off debt, make a large purchase, build your credit score, or earn rewards. Be sure about why you want a credit card before you compare credit cards.

Compare interest rates

The interest rate, or APR, determines how much it'll cost you to borrow with your credit card. When comparing APRs, the main thing to consider is whether you plan to pay off your balance in full every month. If you do, a card with a higher APR might be fine. But if you're more likely to carry a balance, you’ll want the card with the lowest APR you can get – even generous rewards won't make up for the interest accrued with a high APR.

Compare additional fees

Most credit cards also charge common fees such as annual fees, balance transfer fees, cash advance fees, foreign transaction fees, and others. Whether these fees will affect you depends on how you use your credit card. For example, if you don’t plan to do a balance transfer, you could consider a card that charges extra for that. Or, if you plan to do a lot of international traveling, a no foreign transaction fee credit card might be a better choice.

Compare extra benefits

Many credit cards may offer additional benefits like mobile phone insurance, rental car insurance, airport lounge access, and roadside assistance, to name a few. But it’s not uncommon for extra benefits to come with a higher annual fee. When comparing a credit card’s extra benefits, consider your needs. Free airport lounge access sounds great, but it might not be worth it if you're only traveling once or twice a year.

Expert credit card tips

  • Never miss a monthly payment - missing a payment has far more consequences than being charged a bit more interest. First, it could mean you lose any benefits the cards have - such as an interest-free period; second you will get a black mark on your credit report that lasts for years; third you'll be stung with a late payment fee.
  • Have a plan to clear it - If you have a 0% credit card, paying the minimum each month can make sense. The problem comes when that 0% period runs out. At that point, you'll be charged the full APR on any remaining balance you have on the card. So make sure you know exactly when that is, and either have the funds lined up to clear it in full or a new 0% card waiting.
  • If you're in it for rewards, pay in full - Cash back, air miles, supermarket loyalty points, access to events and airport lounges - there are plenty of perks available if you spend money with the right card. But, if you're in it for the rewards, always clear your balance in full. Because interest charged on money you've let carry over from one month to the next can quickly wipe out the value of the perk.
  • Used responsibly, bigger credit limits are better - Banks judge you, in part, based on how much of your credit limit you use. Oddly, that means someone who's used £3,000 of a £4,000 limit has a worse score than someone who's used £3,000 of a £10,000 limit. Also, the best scores are reserved for people whose banks trust them with big limits. Just be careful not to use the full amount unless you can afford to repay it.
% that pay off the full balance[1]
60%
  • Cash costs more - Not all credit card transactions are equal - in fact a whole string of them cost you more. These are known as cash advances, or cash like transactions, and will see you charged interest from the second you make the purchase, quite possibly at a higher APR than normal, and maybe a fee on top.
  • Don't apply for cards too often - If you are rejected after applying for a credit card, don't try to get another one straight away. Making several applications over a short period can make it seem that you're desperate for credit, which is a red flag for lenders. Wait at least six months before applying again.
  • Check twice, apply once - once you've found a card you want, it makes sense to check you'll be accepted. Tools like CardFinder won't hurt your credit score and can let you see how likely you are to be accepted before you apply.

Find out more in our guide to managing your credit card.

What people buy with their credit cards
Based on weekly spending data from Bank of England
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How do lenders assess your eligibility for a credit card?

To be eligible for a credit card in the UK, you must be at least 18 years old and a legal UK resident.

The first decision providers make is whether to offer a credit card at all. Then they figure out how much to let you borrow - your credit limit - and at what interest rate - the APR.

For this they consider three factors:

  • Your income . You'll need to provide details about your salary and any other regular income you get from other sources.
  • Your credit score. The lender will carry out a hard credit check to find out how responsible you've been in paying off credit in the past. This will leave a mark on your credit file and may possibly affect your credit score temporarily.
  • Existing debt. Providers want to know how much debt you already have to see if you can afford to take on more debt and repay it.
Average APR in 2022 [2]
21.4%

How CardFinder works

CardFinder is an eligibility tool that matches you with the credit cards you're likely to get based on your needs and circumstances. It uses a 'soft search' credit check so your credit score will not be affected.

It's a good idea for most people to use CardFinder because it ensures that you only apply for the cards you can get, and thus avoid hurting your credit score from rejected applications.

CardFinder is a quick and low risk way to ensure you only apply for a card you're likely to be accepted for."
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Answer a few simple questions about your finances
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Credit card jargon buster

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About the author

Salman Haqqi
Salman Haqqi spent over a decade as a journalist reporting in several countries around the world. Now as a personal finance expert, he helps people make informed financial decisions.

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References
1. money.co.uk credit card facts and statistics 2022 Data based on a survey of 2,000 credit card users conducted by money.co.uk in July 2022.
2. FICO UK Credit Card Market Report January 2022

About James Andrews

James has spent the past 15 years writing and editing personal finance news, specialising in consumer rights, pensions, insurance, property and investments - picking up a series of awards for his journalism along the way.

View James Andrews's full biography here or visit the money.co.uk press centre for our latest news.