Here's a quick guide to the best credit cards to go for, no matter whether your credit record is good, bad or ugly!
This article was first sent to Fools as part of our Good, Bad & Ugly email campaign.
If you apply for a credit card, the question of whether you'll get accepted or not is one that may burn in your mind. Often you won't even know if your application will be successful or not until that acceptance or rejection letter comes through your letterbox.
Why? Mainly because different credit card providers have different ideas as to what represents a good customer. And most are also very cagey when you quiz them about it. As a result, the question, `what did I get rejected?' can be one of the hardest to answer.
However, here's a quick guide to the best credit cards to go for, no matter whether your credit record is good, bad or ugly!
The (very very) Good
In credit card terms, defining the words `whiter than white' can sometimes seem more abstract than a Picasso painting. However, some lenders will give you a clue as to what exactly `excellent' means.
For example, several Fools have applied for the popular Capital One Platinum card, which offers 0% on balance transfers and purchases until October 2009 (a 3% fee applies) - only to be rejected and offered an alternative, and often less attractive card.
In fairness to Capital One, it does list the type of customer it wants on its website, and in order to have a chance of getting the card, Capital One says you should have owned a credit card for at least five years, with a limit of at least £5,000. In addition, you should have balances on your cards of under £10,000, and have less than two missed payments on credit cards or loans. Needless to say, you should also have no County Court Judgments against you.
Elsewhere, Barclaycard's Simplicity Visa states that you need an `excellent credit rating' in order to apply for that credit card, while its supposed `Platinum' with BT credit card states you only need to have a `good rating' to qualify.
I couldn't distinguish between the two from the criteria listed on the site, although the APRs of 6.8% and 14.9% respectively may mean that you have to be a stellar borrower to qualify for the Simplicity card.
The Bad
On the other end of the scale, there are several credit cards available for those with less-than-perfect credit ratings.
But whether you've had problems with credit in the past, or are just starting out on the credit path, one very bad thing about these cards is that the APRs offered are often astronomical. For example, the Vanquis Visa card currently charges an APR of nearly 39.9%. This means that for every £1000 you borrow, you will pay back an extra £399 in interest over a year.
Other credit cards designed for this purpose include Barclaycard's Initial and Capital One's Classic card, which charge similarly high APRs of 27.9% and 34.9% respectively.
However, desperate times can call for desperate measures, and if you're looking to strengthen your credit record, this may be your only choice. In these circumstances, you should always pay off the balance in full each month so you won't incur hefty interest charges while building up your credit. You will also normally be given a lower limit to ensure you don't overspend, sometimes as little as £200 to start off with.
The Ugly?
We all know about the glossy credit cards for the best customers, and those designed for weaker customers are always pretty apparent, but what about all those cards that fall in between?
Unfortunately, with different lenders using different risk models, there is no sure-fire formula to getting the credit card you want. However, from looking at our discussion boards, some Fool emails and some of the experiences I've encountered, if you don't quite measure up to the Capital One criteria mentioned earlier, there are still some pretty good alternatives.
For example, The Virgin Money Credit Card gives you 0% on balance transfers for a whopping 15 months (a 3% fee applies), two months longer than the Capital One card mentioned, although its 0% deal on purchases offer only lasts for 3 months.
If it's cashback you're after, the American Express Platinum MoneyBack card is a pretty good bet. I have one of these cards, and though I like to think I'm pretty good when it comes to money, I don't exactly dine at the Ivy every night either. I get up to 1.5% cashback on purchases each year, with a 5% cashback bonus for the first three months. Not bad.
Universal tips
Whatever your rating, there are still some measures you can take to stand you in good stead the next time you decide to apply for credit.
Firstly, if you're not on the electoral roll, get on it. Lenders use this to check addresses. If you're not on it, it will definitely affect your chances of getting credit.
And, if you make an application only to be rejected, don't be tempted to apply for more cards in the hope that you'll be accepted elsewhere. Every application you make, whether successful or not leaves a footprint on your credit record which other lenders can see. Too many, and they may think you are overstretching yourself financially - which could lead to yet another rejection.
Instead, you can pay £2 for a copy of your credit report from Experian, Equifax and Call Credit to check for any inaccuracies. You can get also get the report for free via Fool Partner CreditExpert (but once you've seen your free report, you should cancel to avoid paying membership charges). If there is a discrepancy, you can write to the agency to get it removed, though in some circumstances you will also need to liaise with the lender directly.
The most important thing to remember is to read the lending criteria of a credit card carefully before you apply, as this way you could save yourself time and an unnecessary blemish on your credit record should your application be unsuccessful.