Credit cards can truly be a blessing in disguise when used properly under the right circumstances, helping people spread the cost of purchases, improve their credit score and allow them the flexibility to live a more fulfilling lifestyle.
That being said, credit cards can also be incredibly dangerous in the hands of those who don’t have the right knowledge with regards to money management, and can easily be seen as a fast route towards debt and financial ruin.
In this easy-to-follow guide we’ll take you through exactly what you need to know about credit card usage, what you should be doing, and what you shouldn’t be doing. If you take our advice on board then there’s no reason why you can’t reap the rewards of credit, safely and sensibly.
The do’s of credit card usage
Our list detailing the positive things you can do to make the most of credit card usage is as long as our arm, however, every item on the list is incredibly important, and can make a huge difference in the long run, so without further ado, here are the do’s of credit card usage.
Choose the right credit card that best suits your needs
If we’re being honest it can be terrifying choosing what credit card to go for, different companies will throw wildly different numbers at you in the hope of luring you in, and if you don’t know exactly what you’re looking for it’s very easy to become overwhelmed by all of the choice.
There are a variety of different credit cards available to users including credit builder cards, that give people with poor credit scores the ability to build their credit rating over time, balance transfer cards that allow users to reduce the amount of interest they pay each month, money transfer cards which give users the ability to pay off overdrafts for a small fee and reward cards that can see frequent spenders build up air miles, cashback and store discounts.
Where do you even start when looking for a credit card? We’d recommend using trusted comparison sites that specialise in financial services such as Money Supermarket and Compare the Market, they’re impartial and will tell you everything you need to know, good and bad.
Set a monthly payment date that coincides with incoming funds
It almost seems too obvious to be a top tip, but you’d be surprised at how many people overlook this when first getting a credit card for themselves. Always make sure that you set a sensible monthly payment date when you first get a credit card.
It’s highly recommended that your credit card payment date coincides with payday, ideally as closely as possible, this way you’re not left with a deficit in your bank account that could mean you can’t afford to pay for the essentials, or cover other outgoing bills.
That being said, if you’re seeing credit card payments come out of your account, and you’re actually finding yourself in deeper financial difficulty then you probably shouldn’t be using a credit card in the first place!
Pay off as much within your means every month
As touched upon in our last point, only pay off what you can afford to pay off each month, but always make sure you do make a payment, if you’re certain that’s not not going to be possible then contact your credit card provider immediately to discuss your options before debts spiral.
Even if you’re only paying the minimum amount, do it! It might seem like you’re barely making a dent sometimes and can take a long time to clear, it’s only going to be positive for your credit score as you’re proving to other lenders that you’re more than capable of paying debts.
On the other side of the coin, overpaying on the amount you normally would each and every month isn’t going to hinder you either, however only do so if you have the means to do so.
Switch providers when interest free periods end
Most credit card providers will offer customers an interest free period (usually around 18 to 24 months at the most) where they don’t have to pay any interest whatsoever on their monthly credit card payments, which of course is a very attractive proposition.
Of course, nothing good truly lasts forever, and once the interest free period ends you monthly payments can be quite steep in comparison to what you were used to paying, so if you’ve not managed to pay off your credit card in full then consider getting a balance transfer card and moving to a new provider that will essentially reset that interest free period.
The don’ts of credit card usage
Let’s be honest, nobody enjoys being told what to do, especially when it comes to finances. What we spend our money on is a highly personal choice that can cause intense debate amongst peers, friends and family. However, when it comes to credit cards there are a handful of golden rules people should always adhere to, these are the don’ts of credit card usage.
Never skip a credit card payment
This is arguably the most important rule, full stop. Never knowingly skip a credit card payment, not only can the credit card provider add interest to your debt, but they’ll also add a late fee and potentially take away any rewards you’d earned.
If being plunged into deeper debt wasn’t enough to put you off missing a credit card payment, take a moment to think about what doing this will do for your credit score. Missing payments will tank your credit score, and as a result lenders will think twice about lending you money for anything in the future. You might struggle to be approved for essential things such as a mobile phone contract, or even worse, a mortgage which will really affect you in the long term.
Late payments stay on your report for six years in the United Kingdom and seven in the United States… So it’s definitely worth keeping on top of at all times unless you want to find yourself in some sticky situations further down the line.
Never use your credit card for trivial purchases
It can be incredibly easy to believe that you’ve just acquired a brand new source of income when accepted for a credit card, but it should never be viewed this way. Credit is not money that you should use lightly whenever you feel like going out for a meal or for drinks.
It’s especially important not to use your credit card for luxury items that could be considered trivial, such as brand new electronics, clothes or gambling. Unfortunately, many people do use their credit cards for all of the above.
Thankfully the temptation to gamble using a credit card is no longer a serious worry, at least within the United Kingdom, as the UK Gambling Commission banned the use of credit cards at online casinos as of April 14th 2020. So that’s one less thing to worry about going forward.
Avoid making cash withdrawals with your credit card
It might seem easy to go to the cash machine and make a withdrawal when you need to quickly grab some money, however, making a withdrawal using your credit card can incur some hefty fees that add up quite quickly.
Of course, there will be times when you have absolutely no choice but to take cash out using a credit card, but it’s still best avoided. If you can pay for the item you want using the credit card rather than taking out the physical cash then that’s a much better alternative.
Share your credit card information with a third party
It goes without saying that you should never share your credit card information with a third party, regardless of whether you feel they’re trustworthy or not. Fraudsters have many sneaky and believable methods to get hold of your information, and once they’ve got it they’ll drain your card dry of any available funds without a second thought.
Keep your credit card number, three-digit security code, start and expiry date and any online login details close to your chest, it’s always better to be safe than sorry.