Credit Card Tips
Credit cards can be great tools to improve your credit score and to offer rewards. Fail to use a credit card properly you could end up in debt. Whether you’re after first credit card tips or tips for paying off credit card debt fast – we’ve got you covered.
Top 5 credit card tips
The following tips are some general rules you should follow with all credit cards.
1. Pay at least the minimum amount every month
You must pay at least the minimum set by your credit card company every month. This minimum amount is usually a percentage of your total balance. Fail to pay this every month and you’ll receive a late payment fee, a mark on your credit history and you’ll lose any promotional offers that came with the card.
If possible, you should always aim to pay more than the minimum. This way, you will clear your balance quicker and avoid interest.
2. Think carefully about rewards cards
Rewards cards can be expensive with annual fees and high-interest rates, so, don’t pay for something you don’t use! You want a card that rewards your everyday spending.
For example, if you fly regularly, get one that gives you air miles. Or, if you shop somewhere every week, get a rewards credit card that gives you vouchers. The rewards should outweigh any other expense on the card.
3. Don’t withdraw cash
There are a lot of charges for withdrawing cash on a credit card. Credit cards charge a hefty cash advance fee whenever you make a withdrawal which is around 3%. You will also be charged interest instantly on cash withdrawals, rather than after the end of the month.
4. Watch out for hidden fees
There are many fees and charges to take into account when you use a credit card, make sure you are aware of them so there are no nasty surprises on your bill…
- Monthly/Annual fee - some credit cards will charge a monthly or annual fee simply for owning the card, even if you don’t spend on it.
- Interest/APR - if you don’t pay back your balance by the end of the month, you’ll be charged interest.
- Balance transfers - if you transfer a balance from one card to another, you are usually charged a 3% balance transfer fee.
- Cash withdrawals - fees can be as much as £5 every time you make a cash withdrawal. Credit cards also charge interest instantly on cash withdrawals.
- Late payments - miss your monthly payment and you’ll be charged a penalty fee.
- Exceeding credit limit - if you overspend your credit limit, you will likely be charged a penalty.
5. Avoid the minimum payment cycle
Minimum payments will always keep you in debt. You won’t be clearing your balance each month which means that interest will be added on top of your debt. This results in your credit card debt growing extremely quickly. Your minimum payments could only be paying back the added interest each month, not the debt itself.
You will end up paying off your credit card for years and paying far more in interest than you originally spent.
Say your card has 16.9% APR and a minimum payment of 2% each month. If you spent £1,000 on that card and only paid the minimum amount each month, it would cost you a lot of money.
This is because interest would be added on top each month. This interest would total to £1,530. Meaning you’ll be paying £2,530 in total for borrowing just £1,000.
Pay more than the minimum amount.
Credit card application tips
Before applying for a credit card, follow our tips to improve your chances of acceptance.
1. Choose the right credit card for you
You need to fully understand your needs before you consider applying for a credit card. There are so many different cards on the market that have different benefits depending on what you are going to use it for. Read our guide on the best credit cards to help you with your decision.
Here are some of the cards you might consider:
- 0% purchase credit cards - 0% interest on purchases for a certain period of time, sometimes for up to 20 months.
- 0% balance transfer credit cards - 0% interest on transferred debt for up to 36 months.
- Rewards credit cards - earn points or vouchers for every pound you spend.
- Cashback credit cards - earn a percentage of cashback whenever you spend money.
- Airline credit cards - earn air miles or travel-related perks every time you spend.
- Travel credit cards - avoid foreign transaction fees and other charges when using your card to spend abroad.
- Student credit cards - for students who may not have a credit history or regular income.
- Credit cards for bad credit - if you have a poor credit score, these cards can help you to rebuild your history.
2. Reduce your credit utilisation ratio
If you already have a credit card, try to pay back as much as you can before you apply for any new cards. If you are using a lot of your credit limit, you have a high credit utilisation ratio. Having a high credit utilisation ratio tells lenders that you might not be financially responsible and need to borrow a lot of money at once.
Pay off existing debt first to improve your chances of getting accepted for more credit.
3. Compare before you apply
Once you’ve decided what type of credit card suits you, it’s time to compare different cards of that type. You should consider the following when comparing credit cards:
- Representative APR - this is the annual percentage rate that at least 51% of applicants will be given. This does mean that you might be offered a different interest rate but try to pick the lowest one.
- 0% offers - some cards might come with introductory periods with 0% interest on purchases or balance transfers. Remember, the interest will return once this period ends.
- Fees - some cards might charge monthly or annual fees. Cards that offer more benefit such as rewards are more likely to charge a fee. Decide whether it’s worth it for you.
- Rewards & perks - compare what different cards can offer as rewards, offers or promotional periods.
4. Use eligibility checkers
Once you’ve narrowed down your selection to a handful of credit cards, go on each of those card’s websites and use the eligibility checker provided. These eligibility checkers are classed as a ‘soft search’ as they don’t leave a mark on your credit history. They give you an idea of whether you’ll be accepted or rejected.
The verdict the eligibility checker gives isn’t set in stone. However, if a checker says that you are unlikely to be accepted, don’t apply and move onto the next card.
5. Check your credit score
One of the main things lenders look at is your credit score and history. You can ask any of the three main credit reference agencies, Experian, TransUnion or Equifax for your credit report. This will tell you your score and history for free.
If your credit score isn’t very good, take at our guide on credit cards for bad credit. It explains how to improve your score and what cards you could still be accepted for.
6. Don’t apply for multiple credit cards
Once you’ve done all of the above, you should have narrowed your selection down to ONE credit card. You should only apply to this one card and no more.
When you apply for a credit card, it’s classed as a ‘hard search’ which will appear on your credit record. Too many ‘hard searches’ and lenders will believe you are desperate for money and are struggling financially.
So, only apply for one card. If you are rejected, DON’T apply for another card. Take some time to improve your finances and leave a few months gap before applying for another.
First credit card tips
Our top tips will help you start on the right track to credit card success!
1. Set up a direct debit
You don’t want to ever miss a monthly credit card payment. This will damage your credit score and cost you a penalty fee. You can avoid this by setting up a monthly direct debit to pay off your credit card bill.
This way, you’ll never forget about payment and you won’t have to lift a finger! Remember to check you’ve got enough money to pay the direct debit each month.
2. Be wary of 0% credit cards
Some credit cards might come with 0% introductory periods on either purchases or balance transfers. This can be great if you want to spread the cost of a large purchase or pay off a debt without any added interest.
Remember, this interest-free period won’t last forever and the standard interest rate will return once the offer ends.
Therefore, make sure that you clear your balance before the 0% period ends to make the most of the offer. You can set up multiple calendar reminders beforehand.
3. Credit cards are for needs not wants
Having a credit card can simply be too tempting for some people. You could have thousands of pounds to spend at your fingertips. BUT credit cards don’t give out free money. You BORROW money that you need to pay back. If you don’t pay it back before the month is up, you’ll pay interest too.
Only spend what you can afford to pay back every month.
This is why credit cards should only be used for needs not wants. You need to buy petrol, food and other essentials every month. You might want a shiny new laptop or car but don’t be tempted!
The more debt you rack up on a credit card, the more expensive the interest.
4. Download mobile banking apps
Most credit card companies will have a mobile app you can download to stay on track with your spending.
These apps will allow you to pay your bill, view your statement and more. Mobile banking apps are fantastic for beginners as they make managing your credit card so much easier.
Credit card tips for good credit
Are you looking to build up a strong credit history using a credit card? Follow our tips to boost your score using a credit card:
1. Clear your credit card balance every month
If you borrow £500 on your credit card each month, you should be able to pay back that £500 comfortably before the end of the month, every month. Otherwise, interest will be added on top and you’ll owe more than you originally borrowed.
You can work out your monthly credit card expenses. Then, you can organise a direct debit to pay this same amount back each month. This way, you’ll never forget and you’ll be clearing your balance, avoiding added interest.
This is a great way to build a strong credit score as it shows you can regularly borrow and repay money on time every month.
2. Stay below your credit limit
Before you get your credit card, your lender will set you a credit limit based on your credit score and history. The better your credit score, the more credit you’ll be able to borrow.
The average credit limit in the UK is between £3,000 and £4,000.
Your credit utilisation ratio is based on how much of your credit limit you are using at any one time. Lenders tend to like your credit utilisation ratio to be no more than 25%.
If you have a credit limit of £4,000, you shouldn’t borrow more than £1,000 at once. If you need to borrow more, pay off your balance first.
Staying below your limit will improve your credit score and you will be a responsible borrower who doesn’t spend carelessly.
3. Set and stick to a budget
You should only use a credit card mindfully and have a budget in place. Work out what you can comfortably afford to pay back each month and NEVER spend more than that amount. Unless it’s an emergency, of course.
Having a budget means you know exactly how much money you need to pay each month and can set up a direct debit to cover this.
Regular use of your credit card looks great on your history but only if you are paying it back.
4. Use a credit building card
If you have no credit history at all, it can lower your chances of being accepted for a credit card. This is because lenders don’t know if you can make repayments on time and be sensible.
However, a credit building card still accepts people with no credit. These cards do charge higher interest rates and have lower credit limits but they can help you get your foot in the door for more credit in the future.
Just make sure you use the card sensibly and your score will improve.
Credit card security tips
Knowing about how to use your credit card safely is very important. Follow our security tips to avoid any future problems.
1. Report a lost or stolen credit card immediately
If you lose your credit card or believe that it has been stolen, report it to your credit card provider immediately. You can ask them to cancel the card and provide a new one. This will stop fraud or unauthorised purchases in its tracks.
If any purchases were made whilst the card was stolen, you won’t be liable to pay, as long as you report it!
2. Keep your PIN secure
Keep your credit card PIN safe by doing the following:
- Don’t store your PIN with your card or tell anyone else what it is. If someone steals your card and enters the PIN, the bank might not pay you back what was stolen.
- Cover your PIN. Whenever you are entering your PIN, make sure that you are shielding the buttons with your hand and no one is standing behind you watching.
- Change your PIN. If you are forgetful, you can change your PIN to someone memorable to you. Don’t pick anything obvious like your date of birth as people could guess.
3. Dispose of confidential documents properly
Any documents from your credit card company likely contain confidential information. Fraudsters can use this information against you. If you are ever throwing away these documents, make sure you shred them properly beforehand.
4. Don’t trust every email
You might get emails asking for you to verify your personal or credit card details. Never reply to an email with this information or click any links. Credit card companies usually send a letter if they need this information.
If you are ever unsure, always contact your credit card company first to confirm whether the email or letter is from them.
5. Be careful on public Wi-Fi
When you are connected to a public Wi-Fi network on your phone, laptop or tablet you shouldn’t carry out financial transactions or log onto your mobile banking account. Criminals can access these networks and see your credit card information.
Tips for paying off credit card debt fast
If you are struggling with credit card debt, follow these steps to clear debt fast.
1. Use a 0% balance transfer card
Balance transfer credit cards are designed to pay off existing credit card debt. You can shift your original high-interest debt onto a balance transfer card that has 0% interest for a set period of time. This can be up to 36 months!
With a balance transfer card, you focus on paying off your actual debt each month, not the interest as there’s none added. This is a great way to make a significant impact on your credit card debt.
Remember, once the interest-free period is over, you will be charged interest if a balance remains. So, the key to balance transfer cards is to clear your balance before the 0% period ends.
Find out more about 0% balance transfer cards in our guide.
2. Focus on your most expensive debt
If you have multiple credit card debts, prioritise paying off the biggest debt first. If you owe the same amount on different credit cards, focus on the one with the highest interest rate and therefore the most expensive debt.
You must continue paying the minimum amount each month on other credit card debts. However, focus on pouring the most money into the most expensive debt.
Repeat this process with the next most expensive debt and so on until your debts are all paid.
As you clear more of your credit card debt, you will have more money to pour into the next debt.
3. Talk to your credit card provider
Speak to your credit card provider if you are unable to pay more than the minimum amount on your debts each month.
You can discuss a repayment plan that you can afford each month. The aim is to focus on clearing your debt.
However, if you can’t afford to pay any more, you could request an interest freeze on your debt. If the debt is considered unaffordable, lenders will sometimes freeze interest. Frozen interest also freezes your ability to spend any more money on your card.
Whilst admitting that you’re struggling to your credit card provider might seem scary, it can be worth the peace of mind. You’ll soon come to a solution that works for everyone.
For more information and help with credit card debt, read our guide.
I can’t meet my minimum credit card payments due to coronavirus. What should I do?
Coronavirus has put a financial strain on many. If you have a credit card and are struggling to meet your minimum repayments, you may be eligible for help.
The Financial Conduct Authority (FCA) has introduced measures that allow you to request a freeze on credit card repayments for 6 months. However, you may still be charged interest in this period.
You have until the 31st March 2021 to request a freeze but make sure you agree with your lender before stopping repayments. This won’t leave a bad mark on your credit history either due to the exceptional circumstances.
If you can afford to keep paying, it’s best to do so as you will still be charged interest during this holiday period.
All payment holidays must end by 31st July 2021.