The cost of living in the UK is a huge concern in 2022. According to YouGov four in 10 Brits expect their financial circumstances to get worse in the next 12 months. Brits are rightfully concerned as the current 7% inflation rate is the highest annual rise since the 1980s. This has bumped up the price of household bills such as food shopping.
Moreover, the inflation rate is predicted to reach a 40-year high in October. This is because the Ukraine/Russia conflict will cause a further spike in energy costs. Keith Anderson, the chief executive of ScottishPower warned via SkyNews that this price increase would add a further £900 to energy bills. The current situation has been described as the UK’s living crisis.
With bills rising amid uncertain times, some will be forced to rely on credit cards to weather the storm. Furthermore, using a credit card often is more beneficial than using cash or a debit card. Finance savvy customers often exploit the benefits of a credit card without falling into the pitfalls. Of course, not all credit cards are the same. For, example if you have a good credit rating you may be eligible for a low or 0% interest rate. Conversely, a bad credit rating means you may only be eligible for cards with a high interest rate and thus a high annual percentage rate.
This article will show you how to apply for a credit card. It will also explain the different types of credit cards, and what they are best used for.
What are the different types of credit cards?
People applying for a credit card will have both different needs, and different eligibility. This is why it is important to compare credit cards to find the most suitable one for you. Below you will find an explanation of the different types of credit card.
Credit building credit card
Firstly it must be said that the best credit cards are usually only available to those with a good credit report. But, what if you have no credit history? Having no credit history at all will give you a bad rating, as there is little to judge lending risk by. This is when it is best to apply for a credit building credit card. This type of credit card is also beneficial for those trying to improve their credit score after previous bad history.
As they are designed for young people with no history on their credit file or, a bad credit file – they typically have a high acceptance rate. They also have a low credit limit and relatively high interest rates. This type of credit card is used to improve your credit score.
The idea is to make small payments using the credit card, and regularly repay the debt on time. This shows a history of consistent credit repayments, thus improving your credit score. Over time your credit card provider will increase your credit limit. Also, you may become eligible for better credit cards from other credit card providers.
Balance transfer credit cards
If you have built up a good credit rating using a credit card with high interest, you may be better off switching to a balance transfer credit card. These credit cards allow you to transfer any existing debt on a credit card to this new one. Instead of having to pay debt back with an added interest rate, these credit cards have zero interest.
Therefore, you only pay back exactly what you have used. The zero percent rate will only be for a period of time, 28 months for example. Therefore it is best to check and select the card with the lowest interest rate, and APR when the free interest period ends. This type of credit card has a low acceptance rate. Most credit card providers will only accept applicants with a good or excellent credit score.
Cashback credit cards
This is perhaps the most beneficial credit card to own. This is because the card provider will actually pay you to use it. When you use this credit card to buy products you will receive a percentage of that back. This is paid back monthly, quarterly, or annually. For example, if you have a 5% cashback rate, you will receive back £5 for every £100 you spend.
Some will have a capped introductory period, and most lenders will charge an annual fee to use their credit card. This type of credit card is best utilised for everyday shopping like a debit card. For example, it is best to load all your spending money onto the card and avoid borrowing. This way you will receive cashback rewards without being charged interest.
Purchase credit cards
This type of credit card is best used to pay for large purchases. This will grant you a credit agreement of zero interest payments for a set period of time. For example, you may want to buy a new computer and pay it back over a year, without paying interest. In this scenario, you would apply for a purchase credit card with an interest-free period of 12 months.
When you apply for a credit card of this type, eligibility is decided by your credit score. Not only will it decide whether or not you will be accepted, but it will also decide the length of your free interest period.
Low rate credit cards
This type of credit card is best for simplicity and for having consistently low rates. For example, organised finance savvy people will switch to a new credit card when their free interest period ends. This way they can keep switching their credit card to maintain zero interest. However, this can be time-consuming and irritating for some people.
Having a low rate credit card will keep repayment rates low consistently, without price hikes after an introductory period. It is unlikely you will be offered a low-rate credit card if you have a poor credit score.
What should I do before making a credit card application?
Before you apply for a credit card you should have some information handy that will be used for a credit check. A lender will ask you for:
- Your name
- Date of Birth
- Current address (Normally you must be a UK resident)
- Previous addresses
- Income before tax
- Valid registered phone number
You should also check your credit score and predicted eligibility before making an official application. This will help you estimate the likelihood of acceptance for different credit cards. Many credit card providers and price comparison sites will have an eligibility checker. Be sure to only use a soft search check, as multiple official credit applications can lower your credit score.
Before making an application you should select the right credit card for you. You should think over your finances and how you plan to use it. For example pay attention to:
- The credit limit
- Monthly fee
- Charges for cash withdrawals
- Charges for missed payments
- Interest rate
How do I make a credit card application?
When you have selected the type of credit card you want, which matches your estimated eligibility, it is time to make an application. The simplest way to make a credit card application is to apply online. Some lenders only operate online, so that may be the only way to apply for some credit cards. Other lenders have branches where you can apply in person if you prefer. This also gives you a chance to ask further questions.
The application itself is fairly simple. A credit reference agency will be used to perform a credit check. If they deem you eligible, the lender will likely accept your application. They may also offer you an alternative card, or reject your application if your credit score is too low.
If all goes well you will be sent your card. Be sure to make at least the minimum payment each month to avoid further charges.
How to make a credit card application: Summary
The unpredictability of the 2020s has continued into 2022. Brexit, Covid – 19, and the Ukraine/Russia conflict have all contributed to rising prices. The rise in living costs – already described as a ‘living crisis’ is set to rise again in October. The rising costs have sparked an increased interest in credit cards. However, finance savvy people also use credit cards to take advantage of benefits.
There are a number of different types of credit cards you can apply for. A credit building card is best for rebuilding or building from scratch a credit score. Typically these will have a low credit limit and a high-interest rate, allowing you to spend small, and repay to build a credit history.
As you would expect, balance transfer credit cards are best for balance transfers. Cards allowing balance transfers mean you can transfer debt from another card or bank account. The reason for doing this is that they have zero percent interest rates. So, this money transfer allows you to only pay back what you owe, without added interest.
Cashback cards reward you every time you use them. You get a percentage back for each purchase. As long as you use your UK personal account to top up your card before interest is due, it will continue to benefit you. However, be aware that some lenders charge a yearly fee for these cards.
Purchase credit cards can be used for borrowing credit for large purchases, interest-free. The card provider will set a fixed interest-free period to repay. So, for example, you may buy a computer and pay it back interest-free over a period of 12 months.
Low-rate credit cards are best for simplicity and consistency. They consistently stay at low rates, without large interest hikes when the introductory period ends.
Before making an application you should have all your personal information ready that the lender may ask you for. You should also use a soft search eligibility check service, to find out what type of card you are likely to be accepted for. You should assess your needs, and financial circumstances, to decide on the right card for you.
When you have decided on a card, apply either online or in a branch. A credit report check will then be performed to see if you meet the criteria. You will then either be accepted, offered an alternative, or rejected depending on your credit score.
Hopefully, if all goes well you will be accepted and your credit card will be sent out. Just be sure to pay at least the minimum amount each month to avoid debt accruing.