Credit Card Types Explained (And How to Choose)

Lucy Miller 10th Jul 2025 2 Comments

Reading Time: 5 minutes

Credit cards are a necessity for most of us. It’s a lucky person whose monthly wage can stretch to those big purchases like holidays, new items of furniture and car repairs!

It doesn’t mean credit cards are easy to understand, though. With so many different types, and so many different offers that can come alongside them, it can seem like a minefield.

Here we’ll give you some quick tips to get all the different credit card types explained once and for all. You’ll never need to feel flummoxed staring at your statement or over the counter at your bank again!

What are interest rates?
Balance transfers explained
What is cashback?
Interest free periods on purchases
What are travel miles?
Credit rebuilder cards
When to consider a credit card

What are interest rates?

To put it simply, interest is the amount you pay on top of an existing debt (or, if the shoe is on the other foot, the amount you’ll receive yourself on money you have saved in a bank account). It is the amount you pay for the privilege of being able to borrow money.

For credit cards, you’ll pay a certain amount of interest on whatever you’ve borrowed and are still to pay back. The more you’ve borrowed, the more interest you’ll pay. Credit cards all have different interest rates, so make sure yours is as low as possible.

Balance transfers explained

A balance transfer is when you transfer the balance of one credit card onto another. The reason for doing this is to consolidate several credit card debts onto one, and/or to pay less interest overall.

If you’re paying a lot of interest on your existing debt, a balance transfer might be a good idea. Make sure you look for 0% balance transfer deals, which are available as an incentive with lots of credit card providers. You may be charged a balance transfer fee, which is a percentage of the total balance you move from one card to the other. Be aware that this fee often counts as a ‘purchase’ – which means interest WILL be charged on that amount, accruing from the day of the transfer. However, it is a much lower amount than the full debt.

Best Balance Transfer Offers

The best offers to look for should include a long 0% interest period (such as a year or more) and an introductory offer with no or low balance transfer fee.

You MUST make your minimum payments each month on this type of credit card. The 0% refers to no interest being charged – which is a huge relief for those needing breathing space from spiralling debt. But there will be minimum payments every month – and, as always, try to repay more than the minimum and always repay the full debt before the end of the 0% balance interest period.

KEY TAKEAWAYS:

Ideal if you want to get breathing space from credit card interest payments

Look for long 0% balance transfer periods and 0% transfer fee deals

Always repay the full debt before the end of the 0% period to avoid high interest charges

What is cashback?

Cashback is the money you receive back when you make purchases with your credit card. Cashback programmes are usually used as incentives to get people to sign up to specific credit cards. For example, you might get £1 back for every £100 that you spend – making a scheme sound tempting if you’re going to be making a lot of purchases on credit.

Be careful, though – if you don’t need to spend on your credit card, cashback could tempt you to do so anyway. If you can buy things without using your credit card you should – the money you recieve back is unlikely to be worth the interest that you pay in the long term.

You can often stack cashback on credit cards with cashback websites for an extra little boost.

KEY TAKEAWAYS:

Earn a percentage back on your purchases

Only use if you have strong willpower not to spend just to get the cashback

Can also be used to earn airmiles instead of cashback, ideal for frequent travellers

Interest-free periods on purchases

Interest free periods do exactly what they suggest – they allow you to spend money and make purchases on your credit card without paying interest. Remember that this interest-free period won’t last forever, though – you will start paying at some point.

However, if you can get your credit card paid off before you start paying interest you’re on to a winner! Most interest free periods last just under two months.

KEY TAKEAWAYS:

No interest charged on purchases in the offer period

Always pay off before the offer period ends

Ideal for short-term large payments, such as on furniture – keeping track of regular interest-free purchase spending can be tricky

What are travel miles?

Another incentive that you might see when you’re looking for a good credit card deal is air miles, aka travel miles. These incentives work in a relatively simple way: the credit card provider (usually a bank) will partner with an airline to offer air miles for customers the more they spend on their credit card.

Reward miles, such as airmiles, can be spent on things like flight upgrades, free companion tickets, first class lounges, and even hotels and activities.

Of course, this incentive is only worth it if you’re going to use your miles – so don’t get sucked in if you prefer taking your holidays in the UK!

KEY TAKEAWAYS:

Perfect for frequent travellers or if you have a big trip planned in a year or two

No financial reward and airmiles aren’t transferable to other airlines (eg Avios can only be spent on British Airways and their partners, Virgin on their airlines and partners etc).

Can come with higher interest than other credit cards available

Credit Card Types Explained: Credit rebuilder cards

Credit rebuilder cards can be a great idea if you’re looking to rebuild a bad credit score. If you’ve had debt that you’ve struggled to pay off in the past, or if you’ve struggled in other ways financially, you might have trouble getting accepted for a regular credit card.

This is where a rebuilder credit card comes in. If you have a poor credit history and are struggling to get approved for traditional credit cards, credit cards for really bad credit might be a good option to consider for improving your credit score. Often easier to get accepted for than regular cards, they’re designed exactly for the situations described above. They might charge a higher rate of interest than regular cards, so make sure you check this before you sign up.

KEY TAKEAWAYS:

If you can’t get other lines of credit because of debt or a bad credit score

Exceptionally high interest rates so always pay in full each month

Help to rebuild your credit score over a few years

When to consider a credit card

The basic rule here is to only consider a credit card if you know you’ll be able to afford to pay it off. If you have no regular income or you know you won’t be able to make the minimum monthly repayments, making a purchase on credit could be a very bad idea.

Ask yourself these questions:

What do I need a credit card for? Is it a one-off purchase (a bed, a new car, etc) that I really can’t live without?
How much does it cost – i.e, how much debt wilI I need to put onto my credit card?
What will my minimum repayments be?
Will I reasonably be able to pay off the minimum balance every month?

Once you’ve answered these questions you’ll be in a good position to take out a credit card, and know exactly how you’ll pay it off. Remember, knowledge – especially when it comes to finance and borrowing – is power!

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.