What Makes the Best Credit Cards?

There are a number of important milestones in the short history of credit cards since the first were launched in Britain on 29th June 1966 (the "Barclaycard"). Perhaps the most significant milestone, however, is in 2004 when expenditure on this plastic medium exceeded expenditure in cash in this country. Today, the Association for Payment Clearing Services (APACS) estimates that most consumers pay for at least half their purchases with a credit card. So, credit cards are at least as important as cash, it would seem ? but what makes for the best credit cards?

As so often the case, the answer depends entirely on the use to which we are planning to put the credit card. It really is a question of horses for courses. More than that, it is not just a case of one card suiting different individuals? circumstances, but the fact that we all tend to use credit cards for different purposes at different times. The "best" will depend on what we are using it for at any particular time.

With this in mind, the three main uses of a credit card will be:

- To make purchases ? this is the original purpose of the credit card. Purchases on credit allow you to buy now and pay later. The principal concern when using the plastic in this way, therefore, is to ensure that as low a rate of interest is applied to that credit transaction. In addition to the rate of interest advertised, however, it is also important to take into account the period of "grace" generally allowed between the purchase and the application of any interest. With credit card statements generally issued each month, then this is usually also the maximum period during which the credit is effectively interest free. The best credit card when making purchases, therefore, is the one with the lowest rate of interest on such transactions and the one with the longest period of grace. If you always pay off the balance on the card before the date demanded on the monthly statement, however, you can always be assured of short-term interest-free credit;

- Balance transfers ? with the proliferation of credit cards and intensely keen competition between providers, the second principal purpose is to transfer an existing balance from one card to another. The reason for doing this is the compelling enticement offered by most providers in extending interest-free credit on any such balances, at least for an introductory period. This makes the repayment of your existing balance rather like paying off an interest-free loan. Beware the interest rate that is applied on any new purchases during such an offer, however, since, in some cases, the interest-free offer applies only to the transferred balance and not new spending, which might well attract an even higher rate of interest than applied to your previous card. Points to consider are the balance transfer fee, the best card to hold in these circumstances is the one that offers a zero percent rate of interest on a transferred balance for as long an introductory period as possible and a low/zero (for a period of time) rate of interest on new purchases;

- Cash withdrawals ? although practically all credit cards will allow you to make cash withdrawals, no card is best used for this purpose. Cash withdrawals are likely to attract the card?s highest rate of interest, which will be applied from the time that the withdrawal is made, without the period of grace normally allowed on credit purchases. A credit card should be used for this period only in an absolute emergency, therefore, and the best that can be said for a card of such last resort is that it should apply the least costly rate of interest on the transaction

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