Best practice for credit card use

There are many benefits to obtaining and using a credit card. You can spread the cost of purchasing larger items and could find a solution to an unexpected bill or debt.

This being said, the improper use of credit cards can have a detrimental effect on your finances as well as your credit rating, so it’s always best to ensure you follow the best practices:

Best deal

Whenever you apply for a card, check what you’re getting and what it entails for you in the long run. The lower the fees and the interest rates, the less you pay for the privilege of borrowing. For example, as of 25 January 2016, you could take out a Barclaycard Platinum Card with an APR of 18.9%, a 0% offer for all purchases in the first 6 months and 0% on balance transfers for 37 months (with a small fee). Alternatively, Ocean Finance have a card offering an APR of 34.9% for all purchases from the start and a balance transfer of 34.9%. In failing to compare rates, you could end up paying a lot more for your purchases.

Limits

Whenever you take out a credit card, you’ll be given a credit limit. This is the maximum amount you can put onto the card at any one time. Although you’ll have no choice but to stick to this maximum amount, you should also consider what your own limit is. So, when purchasing any item ask yourself if you can afford the repayments and don’t be tempted to max out the card just because you can.

Repayments

Every month, you’ll be given the option of paying in full, paying the minimum amount due or paying something in between. You might not be able to pay off the balance in full (although it’s recommended because you might escape paying any interest) but to only pay the very minimum amount due not only means paying more interest in the long run but also that you’ll be paying the balance off for a very long time. Therefore, calculate what you can afford to pay and give as much as you can.

Timely payments

Whenever you default on a repayment, even if it’s just by a few days, your credit rating is adversely affected. In addition, the company could decide to freeze your card or prevent you making any further purchases on it.

Avoid cash advances

As well as purchases, you’ll also have the option of simply withdrawing money from a cash point. This is a big mistake. Not only will you be charged interest from the time of the withdrawal, but you may also be charged a fee for doing so.

Seek help

If you’re unable to manage your repayments or feel that they’re too much for you, seek help. Speak to your credit card company and discuss the matter. Hiding your head in the sand will only lead to big problems in the future, whereas tackling the matter head on means finding a valid and sensible solution which could save you an adverse credit rating in the future.

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