3 essential credit card rules

If you have or want a credit card, make sure you follow these steps

Whenever I write or talk about credit cards, there are a handful of things I always say. Always. That’s because they’re vital rules that mean a credit card can help your finances rather than cause harm.

There are plenty more things to understand, especially when you’re looking at different types of credit card, but these are the essential basics.

Ask if you really need a credit card

There are a number of benefits to credit cards, so they shouldn’t be dismissed out of hand.

I love them for earning cashback and rewards on the majority of my spending (via specialist cards) – though right now Chase’s debit card is a better option for 12 months.

With all credit cards you get added consumer protection on items over £100 thanks to Section 75 of the Consumer Credit Act – a valuable extra if something goes wrong with your purchase.

A 0% card can either reduce the cost of another debt (via a 0% balance transfer or money transfer card) or help you pay for something expensive (via a 0% purchase credit card).

And for those with a “thin” credit report, getting a credit card and using it responsibly can help you develop a history and boost your score. That’s really handy for things like mortgages, loans and getting your hands on a reward credit card.

One might even be essential if you’re getting a hire car where the pre-authorisation charge would wipe out the balance of your debit card.

But, having a credit card isn’t an excuse to spend what you don’t have. Building up debts on these cards can get very expensive, very fast. While cashback cards, in particular, are pointless if you get charged interest.

In fact, when I share credit card offers and review reward cards I don’t mention the interest rate. And the big reason is I don’t want you to get a credit card if you are going to get charged interest.

So it’s vital that you only use a credit card for spending you can afford or to reduce the cost of existing debts. If you’re someone who thinks the temptation is too much, then perhaps it’s worth avoiding them completely.

But having said that, sometimes life doesn’t work that way, and if you think you will have to pay interest some or most months then the interest rate becomes the most important factor. Forget cashback or other features and focus on the lowest possible rate.

Check eligibility before applying

Each time you apply for a credit card, a “hard search” appears on your credit report. That’s not usually too much of an issue. Yes, your score will dip, but it should be temporary.

But if you get rejected and need to apply again, that’s two searches and a bigger drop in your score. And if that’s not successful and you apply again, it’s even worse.

To prevent this you can do something called an eligibility check beforehand. This will only make a “soft saerch” on your credit report, and this has no impact on your score as potential lenders can’t see that these checks have taken place.

The result of an eligibility check will vary. There’s a chance you’ll preapproved, and be told not only that you’ll definitely get the card but also the interest rate and length of any deal. Or you might get a score out of 10 or a percentage revealing the likelihood of a successful application.

If it’s not 10 out of 10 or 100% it means you might get rejected for the card if you apply, but even if it says 1 out of 10, there’s still a chance you’ll get it.

I recommend going via a comparison site such as Money Saving Expert’s Credit Club to do this as you have the advantage of seeing other options. If there’s a better chance of getting one card over another, then logically that’s the one to apply for.

It’s worth noting that MSE and other comparison sites won’t show you the full market – just cards they get a commission for. So you might want to try a couple to get a fuller picture.

You can also check directly with the card providers (and some make you do this before applying) but you miss out on seeing your chances for success with other companies if you skip the comparison site.

Pay on time and in full (or as much as you can)

It’s vital you pay your credit card bill every month. Missing a payment can hit your credit file and might come with charges too. A direct debit will make sure you don’t forget and is easy to set up with the credit card company.

Ideally, set this direct debit for the full amount on the bill. This avoids any interest getting added to your debt. You just need to ensure you have enough money in your linked account to cover the payment.

I tend to put a note in my calendar to remind me the payment is coming out, so I can move money around if needed. Alternatively you could have a separate current account set up just for your credit card bill, and transfer money over each time you spend – a handy trick if you’re using a reward credit card.

What about 0% cards?

If you have a 0% purchase or balance transfer card, then you obviously don’t need to clear the total balance each month. But you should plan to do this by the end of the 0% period.

Say you’ve transferred £2000 for 20 months, you’d ideally want to clear £100 a month to ensure it’s at zero when the deal ends. Or you could put that same £100 into a savings account instead (minus the minimum payment).

You’ll then have the full amount to clear the card but will have earnt some interest on it in the meantime. Here’s my guide to the best savings accounts.

If you can’t clear the balance completely, then try to pay off as much as you can afford each month. This will minimise the interest you’ll be charged on the remaining balance, and also help you clear the total debt as fast as possible. If you’ve got extra money in any particular month you can always make an additional payment.

At the very least, you must pay at least the minimum balance every month, even on 0% purchase and balance transfer cards. Fail to do this and you’ll get hit with extra charges or lose offers like 0% interest.


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