Credit cards nowadays have become a universal way of borrowing money in order to make a purchase or pay for a service.

There are many types of credit cards that suit different purposes and address different categories of clients. Student credit cads, travel credit cards, store cards and credit cards for small business, to name just a few. They can be issued by banks, supermarkets, airlines and even some charities.

They also differ in terms of interests and ways in which the debt is being repaid. Some offer low interest rates, others lure clients with a cashback or rewards, there are 0% purchase cards or 0% balance transfer credit cards as well as specialized overseas credit cards.

Application for a credit card is easy and can be done on-line, on the phone, at the post office or in a bank. Some personal information needs to be provided about your home address, income and other credit cards you already have. The card provider uses this information in order to establish a credit limit – the amount of money available to you. The card will also have a minimum monthly repayment and an interest rate on the outstanding balance attached.

Interest rates differ considerably from card to card and this is the field where you can play smart in order to obtain the best options. Important thing to remember is that interest rates even on the same credit card might differ – the same card issuer might charge different rates on cash advances, purchases and balance transfers.

Before taking out a credit card consider what you are going to use it for. If you often make purchases, go for a cashback card, if travel a lot – for the one that offers air miles on purchases. For a big one-time purchase a card with 0% introductory offer would be best. For those who pay off credit card debt bill monthly and in full, a card with long interest-free period could the best choice, otherwise go for a card with low interest rate on purchases.

It is better not to use credit cards for cash withdrawal at ATM as it has the highest interest rate as well as a fee of minimum 1,5% on the amount taken. Most standard card providers also charge a fee if you use your card abroad. In this case it is better to use a special travel card.

Many cards have interest-free initial periods for purchases and balance transfers in order to attract new clients. If you are using such cards, make sure you pay all the outstanding debt before the end of this period. If you still have a lot to pay by the end of this interest-free period, it is possible to transfer your outstanding debt to a new card with zero interest period or low interest. It is called balance transfer and until recently could be done as many times as you needed it, but now the credit companies have introduced balance transfer fees, usually about 2.5% of the amount of debt that is being transferred. This makes transferring smaller debts unprofitable.

Remember also that if you do not keep your monthly payments, you end up with a default fee, usually of £12, although some companies charge even more.

Most cards have insurance in case the item you bought turns out to be damaged or you have to claim a refund for bad service. But be careful and always read the small print as there are special conditions for application of this insurance. Credit cards are also regulated by Section 75 of the Consumer Credit Act which makes the credit card provider liable together with the service or goods provider in case there is some problem and the latter files for bankruptcy before giving you a refund. It applies to purchases between £100 and £30,000. Highly recommended if you are paying for your house renovation works or any construction services. Payment Protection Insurance (PPI), on the other hand, is strictly optional, costly (even more so if offered by the card provider himself) and is generally considered a waste of money.