Top Ten Credit Card Tips
Follow our Top Ten Credit Card Usage Tips to ensure that you make your credit cards work for you in an efficient and sensible way.
1. Choose Your Credit Card carefully
First things first: choose the right card for the right job. This may mean that you need more than one credit card in your possession. If you don't, it could cost you hard earned cash! To work out which card(s) you need, use our Guide to Choosing a Credit Card
2. Understand the Terms & Conditions
We understand that reading the "smallprint" is never fun, but believe us, it pays big dividends when it comes to credit cards if you don't want to be caught out with unexpected fees and charges. So take a few minutes to read through the credit agreement and understand important things like interest rates, minimum monthly payments, fees and charges. At the very least, make sure you read the Summary Box that all card issuers send you with the agreement. If you don't understand anything, ask the lender or ask a question on our discussion forums.
3. Always make the minimum monthly payment on time
If you do nothing else, always make sure you make the minimum monthly payment on time. If you don't, then you will get charged late/missed payment fees, you will lose any introductory offers on your credit card and it will damage your credit rating. A simple way to avoid this problem is to set up a direct debit to pay the minimum payment every month. Although making payment on time will give you a healthy credit history and make the card company happy, it is not sensible to only make minimum payments. If you do, it will take you many years to pay off the debt and you will be charged a huge amount of interest in the process. This is where having a credit card can be very costly.
4. If you can, try to pay off the balance in full each month
The ideal way to use a credit card is to pay off the full balance that is shown on your card statement each and every month. This way you will not pay the lender so much as one penny in interest, you will not get yourself into financial difficulty, yet you will still have all the benefits of using a credit card. In addition, you will get up to 56 days interest free credit on your purchases, because there is a gap between the date you make the purchase and the date you have to pay your bill. If you don't pay your balance off in full each month, you would normally lose that interest fee period and all transactions will have interest charged on them from the day you make the purchase.
5. Never use your credit card for cash withdrawals
Tempting though it may be if you are on a night out, try not to use your credit card for cash withdrawals, because it is very costly. Most lenders will charge you interest from the date of the transaction and it will often be at a higher interest rate than you would pay for normal purchases. Use your debit card instead.
6. Never use a Balance Transfer card for purchases
Many credit card users will move expensive debt from one card to another to take advantage of low interest balance transfer offers. We think that is a great idea, but you need to watch out because credit card issuers are smart people and like to make money from us. One of their favourite tricks is to entice customers with a low Balance Transfer interest rate and then encourage us to use the card for purchases too. The catch here is that the lender will use your monthly payments to pay off the cheapest debt first, so it will go against the Balance Transfer rather than the Purchase debt. This means that you will pay interest each and every month on your Purchases. The solution here is to use separate cards for Balance Transfers and Purchases. The only exception to this rule is if you have a card that has introductory offers on both BTs and Purchases and the duration of the introductory periods are identical.
7. Never exceed your credit limit, keep track of your spending
Always keep your spending within your credit limit. If you don't then you will lose any introductory interest rate offers, you will get charged a fee and it may affect your credit rating. To avoid this, you should always keep track of your credit card spending. This could be as simple as writing it down in a notebook or typing it into your mobile phone's notepad facility.
8. Remember that credit cards are not 'free money'!
When you are using your credit card, you are spending someone else's money and you will need to pay it back, possibly with interest. It is not 'free money' - it is a debt you owe to the card company until you pay it all back. Another way to look at it is that any form of borrowing is "borrowing from your future self", because it is you who will have to pay back this debt some time in the future. So if you don't want the "future you" to be short of cash, then don't borrow too much from him or her just now!!
9. Choose your card based on its financial benefits, not its colour or coolness factor
When choosing your credit card, remember that it is a financial product that you are selecting so you should really evaluate it on the basis of its financial benefits rather than anything else. Lenders will use all the marketing tricks in the book to get you to use their cards. For the status conscious they offer us sleek looking black cards, gold or platinum ones. Others have pictures of cats or dogs or declare allegiance to a football team. These can be a bit of fun but they shouldn't distract you from looking at the cards in terms of their interest rates etc. By all means choose a card because it looks cool, but do it in the knowledge that it may be costing you a few percentage in your interest rate.
10. Keep up to date with the credit card market
As with any financial product, it pays to keep up to date with the best deals and to learn tips and techniques from others, so why not sign up for our subscription only newsletter and participate in our friendly and helpful discussion forums.