The 10 Credit Card Commandments
If you’re looking to improve your credit rating but avoid financial hardship, here are some useful tips…
Personal finance experts from The Money Pig have revealed five dos and five don’ts to help people use credit cards correctly, without running into problems with debt.
Credit cards can offer a lifeline to help families deal with unexpected bills. However they must be managed properly to avoid long-standing debt.
Making certain purchases on certain credit cards can also actually help make money and earn rewards – but only with certain deals and lenders.
A spokesperson for The Money Pig said, “Credit cards can help you improve your credit rating and manage your finances, but only if they’re monitored and handled properly.
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“Making improvements to your credit rating can be especially helpful for first-time home buyers. This is because they need to better their chances of getting a mortgage.
“Credit cards can also offer another layer of protection for large or significant purchases. Some offer amazing benefits, such as reward systems and cashback.
“As long as you don’t use more credit than you can afford to repay, and keep up with your payment schedule, credit cards can make a great addition to your personal finance toolkit.”
1. DO take advantage of 0% offers
If you have debt on a credit or store card that you’re having to pay interest on, move using a 0% balance transfer deal.
A lot of providers will offer interest-free periods on balance transfers and even new purchases. You’ll be charged a small fee for moving a balance over, but this is usually added to the overall debt and doesn’t have to be paid upfront.
2. DO use a credit card for large or significant purchases
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The different payment processing infrastructures for debit and credit cards means issuers treat them very differently.
When you pay for something on a credit card, the issuer is jointly liable with the merchant to make sure that the item you bought is delivered to you as described.
So if your purchase turns out to be faulty or perhaps it doesn’t arrive at all, you have a better chance at claiming the money back.
Also, you’re more likely to earn rewards on credit card purchases.
3. DO your research
Different types of credit cards are suited to different needs.
- Reward cards reward cardholders for using them, in the form of cash, gift cards, statement credit, and tickets. Rewards can be earned through a ‘points’ or ‘miles’ system, which each has its own unique features and conditions.
- Zero percent APR cards include an introductory deal. This allows a cardholder to carry a month-to-month balance without paying interest for a specific amount of time. Monthly payments still need to be made, though.
- Balance transfer cards allow you to transfer a balance from one card to another, which usually has a more favourable interest rate. These can be used to consolidate credit into one, easy payment.
4. DO use your credit card to make money
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If you’re able to pay off your debt in full each month, you could actually benefit from a cashback or reward card. These cards offer incentives for using them, such as cashback, air miles, shopping vouchers and more.
This system will only benefit you if you can clear your balance each month, though. Otherwise, the interest you’re charged will probably outweigh the value of any rewards you receive.
5. DO set up a direct debit
To avoid any missed or late payment charges, set up a monthly direct debit for the minimum payment. You can then make additional, one-off payments taking into account what you can afford each month.
So those are the positive steps. Here are the main pitfalls to avoid!
1. DON’T miss your payments
Failure to pay at least the minimum monthly payment will not only mean you’re hit with a missed payment charge, but it may even show up on and impact your credit rating. This could hinder your chances of getting credit in the future.
2. DON’T use a credit card to withdraw cash
Interest rates on credit card cash withdrawals are huge, on top of a fee that is usually around 3% of the amount you withdraw. This is a big “no-no”.
3. DON’T exceed your credit limit
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When you apply for a credit card, you will be given a credit limit which is ultimately a spending cap. Keep an eye on your limit because if you exceed it, your account will be blocked and you’ll be charged a penalty fee.
4. DON’T use credit as a substitute for income
If you find yourself using credit to cover daily expenses because you don’t have the funds in your current account, this is a slippery slope to financial distress.
If you notice this happening, stop and make a budget.
If you can’t find a way to balance your budget, talk to a professional financial expert who can help you (see below).
5. DON’T apply for too many new credit cards in a short period
Each time you apply for a new credit card, you authorise a credit check that creates a hard inquiry on your credit report.
If you authorise too many credit checks in a 6-month period, it can impact your credit score. So, don’t apply for too many credit cards or loans at once.
If you need urgent help with debt, please contact the Money Advice Service or StepChange for free, practical advice.
