What different types of credit cards are available?

There are many different types of credit card on the market. Here's everything you need to know about choosing the right card to suit your needs.

Used correctly, credit cards can give you a wealth of benefits and savings. However, it’s important to make sure you can realistically pay off any debt you run up on them with timely, regular payments.

Although they appear to share some similarities, debit cards and credit cards are very different. Debit cards are linked to your bank account and withdraw the money immediately whenever you use them. However, credit cards are a form of borrowing, resulting in a bill you will have to pay off. While you can use both cards to pay for many of the same things, credit cards give you added protection if things go wrong. If your item is faulty or not as advertised, or the retailer goes bust, the credit card company is jointly responsible along with the retailer for making sure you’re not out of pocket, under section 75 of the Consumer Credit Act 1974.

This guide explains some of the key types of cards out there. Many card products offer a combination of different benefits, so it’s important to be aware these groupings aren’t mutually exclusive.

Remember that some factors, such as the credit limit, interest rate and the length of any introductory promotional periods can be tailored to the individual by the card issuer. In other words, if you have a poor or limited credit history, the issuer might offer you a different (higher) rate than the advertised APR, for example.

Beginners guide to credit cards

M&S Bank Shopping Plus Credit Card

M&S Bank Shopping Plus Credit Card

  • 0% on balance transfers for 22 months
  • 0% on purchases for 22 months
  • No annual fee

Representative example: When you spend £1,200 at a purchase rate of 21.9% (variable) p.a., your representative rate is 21.9% APR (variable).


Cards for everyday or big purchases

If you’re planning to use your credit card for either everyday spending or to pay for a large purchase, consider a purchases card to spread the payments over time. There are many attractive deals offering long interest-free periods, sometimes as long as 32 months. Alternatively, you could get a card which offers the same, flat low-rate so there are no nasty surprises.

0% purchase credit cards are suitable for people who want to spread the cost of major expenses, but without having to pay any interest. They usually offer an interest-free period on all purchases made over a specified period of time, usually between 12-24 months or longer. However, you will still have to make the minimum monthly payment.
If you want to keep your interest rate down over a long period of time, consider a low interest card. These no-frills cards don’t usually offer headline-grabbing introductory fixed rates and rewards, but offer the advantage of ongoing simplicity.

Cards that earn rewards as you spend

If you want to be rewarded as you spend, consider a rewards credit card. Depending on what type you choose, you could be rewarded with a cashback or points as you spend. Points can be redeemed for a variety of different items and experiences.

Cashback cards return a percentage of your spending back to you. For example, if you spend £5,000 on your card and get 1% cash back, you’ll receive £50. A cashback can be paid to you into your account either monthly or yearly, depending on the provider.
    Rewards credit cards offer points based on the amount you spend. Points can be redeemed on a wide range of items and experiences (depending on the card type and provider) including travel, restaurants, cinemas and groceries. Examples of rewards points include Avios, Nectar and Tesco Clubcard points.
    If you’re a frequent flyer, you could be rewarded for your travel with points and other benefits, as well as avoid foreign transaction fees. You can enjoy upgrades and perks, such as airport lounge access, travel insurance, concierge services and even complimentary flights or hotel stays. Reward points can be redeemed on flights, hotels, cruises and even rental cars.
    Store cards offer you rewards for shopping with a particular brand or store group. These types of cards can be broken down into two groups: traditional store cards (which can only be used in-store) and store credit cards (which are usually on a card network, such as Mastercard or Visa, and can be used elsewhere). As well as offering you points that can be redeemed in-store, you can also enjoy other perks, such as free shipping, invites to cardholder events and exclusive sales.
    Platinum credit cards are a prestige product that offer impressive rewards to those who spend regularly. They usually require an excellent credit score and a high income. Often, you must be an existing banking customer with the provider to open a platinum credit card with them.

    Cards for bad credit

    If you have no or a bad credit history, you may struggle to be approved for finance. If you want to build or improve your credit score over time, a credit builder card could be a solution. Alternatively, if you are finding you can’t get a credit card at all, a prepaid card could be useful, especially when going abroad.

    Credit builder cards can be used for two types of customer – people with no credit history whatsoever and others who have a bad credit history they want to rehabilitate. These cards usually have a lower credit limit and high interest rates, so you are encouraged to pay off your balance in full every month.

    The easiest way to understand a prepaid card is to think of it like a gift card. Before you can use one, you have to load it with funds and use it to pay like a normal credit card. However, unlike a normal credit card, you don’t use a prepaid card to borrow money; you are only allowed to spend the funds you have preloaded. Once you spend the money, you have to reload your card before you can use it again. People with no credit history and under 18s are eligible to use this type of card.

    Cards for existing debt

    If you have any existing debt – be it a credit card, loan or overdraft – and are paying high interest and charges, you may want to consider a balance transfer card or money transfer card. Alternatively, if you have existing debt and expect to make more purchases in the future, a “balanced” 0% balance transfer and purchases card could be an option.

    A balance transfer card allows you to move your existing debt to another credit card provider. Its main attraction is a low interest rate on balance transfers – usually 0% – for a long introductory period (usually between 12 and 24 months but in some cases much longer). However, it’s important to note that most of these come with a balance transfer fee – usually between 1-3% of the debt you are moving – so weigh up if this fee would work out more or less than the interest you’re currently paying.

    If you’re looking to make a big purchase, or perhaps pay off an existing overdraft or loan, then a money transfer card could be useful. This type of card actually transfers the funds off your card into a bank account of your choosing. They usually offer a very low or 0% interest rate for a period between 19 to 30 months. It’s important to be aware that most of these cards charge a money transfer fee – usually 3-4% of the balance you are transferring – so work out if a personal loan could be cheaper.

    The words “balanced”, “matched” or “dual” are often used to describe credit cards with the same 0% interest free introductory periods for both balance transfers and purchases. These are handy cards for people with existing credit card debt, who are also planning to make large purchases in the future. You can take a break from interest on both balance transfers and purchases, although you will probably find the interest-free time period is shorter than a card just offering balance transfers only, or vice versa.

    Credit cards for travel

    If you want to save money or be rewarded when you travel, consider one of the credit cards aimed for travellers. As well as frequent flyer cards, there are also general rewards cards which let you redeem points on travel, while other cards don’t charge a foreign transaction fee.

    If you go abroad often, or shop with international stores, you may find your foreign transaction fees racking up. These can be around 2-3% of each transaction and are separate from cash machine withdrawal fees. For example, if you paid your £800 hotel bill on your credit card while in Croatia, you could be charged a 3% fee of £24.