Tips for Better Credit Card Usage

Credit cards can be a great financial aid, but like any form of borrowing they have to be used well to avoid problem debts as well as to simply make sure that your credit is as cost-effective as possible. Here are a few ways you can optimise your credit card spending:

Don’t Use Them Unnecessarily

A credit card is not free money. It is not even a free “advance” on money you are going to repay later – unless you have 0% on purchases and repay before this expires of course. It is very easy to underestimate interest and the cost that it represents in real terms, writing it off as “a little bit extra” on each repayment. However, interest can mount up a lot more than most people realise over time. Keep your credit card for the times where you need it, or can see a clear benefit in using it.

Don’t Maintain Debts Long-Term

Managed properly, credit cards are a fantastic source of short- and medium-term borrowing, but over time they can really get costly. Recent research from the FCA has shown that well over a million consumers are maintaining debts for several years and making only the minimum repayments. The financial regulator was concerned at the cost of interest, as well as the lack of help available from lenders. Aim to clear your debts as soon as you reasonably can and not maintain debts longer-term.

Switch When Introductory Deals Run Out

Like many services such as insurance, credit cards are something you should switch regularly. Introductory offers such as 0% periods can be great, but the price increase when these offers run out can be steep. The simplest solution is simply to take out a new card with a new introductory offer, transferring any remaining balance at the most favourable rate you can. When you take out a new card, make sure you actually cancel your old one rather than simply ceasing to use it. Not doing so can harm your credit rating, as it looks to lenders like you are juggling multiple cards.

Use it in Place of More Expensive Finance

One place where credit cards excel is in replacing more expensive finance options. For example, a credit card, if available, will be astronomically cheaper than most payday loans. Alternatively, there are other situations which we might not think of as borrowing but, really, are. For example, do you pay for your car insurance or road tax in instalments? If so, you are effectively being offered finance, and the total you pay will be more than if you had paid in a single lump sum. If you pay it in full using a credit card with a year or more of 0% on purchases, then you can spread the cost without paying extra by paying off your credit card balance in instalments over the same period.

Rebuild a Credit Score Damaged by Debt

If you’ve had trouble with difficult debts and managed to pay them off, you probably breathed a great big sigh of relief the moment they were clear. But while you have every right to sit back and take a welcome breather from your worries, you might soon start to think about the next challenge: rebuilding your credit score. This doesn’t have to be a rush, but it will be important in the future if you ever want to take out credit again, whether it’s a mortgage, a simple credit card, or even a finance deal on a purchase.

Fortunately, rebuilding your credit score doesn’t have to be anywhere near as stressful and difficult as dealing with problem debts. There are a few steps you can take to help put your record back together.

Take a Look

It’s understandable if you’re reluctant to look at your credit report. You know it’s going to be bad, and the debts that got you into this situation are probably not happy memories, so why go out of your way to find out just how bad it is? The truth is, however, that it’s best to know exactly where you stand and how far you have to go. Obtain a copy of your report, and keep an eye on it throughout the process to watch how it improves.

Get a Credit Card

Your credit report is basically your record as a borrower, so there is one very useful way to improve it; borrow and pay back. To build up a record as a good borrower, you need to demonstrate that you can manage and repay debts Clearly you don’t want to take out a full-on loan or anything like that, so credit cards are the way to go. Get whatever deal you can get, and start to use it. Cards for poor credit tend to have very high rates of interest, but that doesn’t have to matter. Just make sure you pay it back in full and on time each month to avoid the issue of interest. Use it to buy things you could and would have bought anyway with cash (lots of little purchases will be fine), so that you will always have the money available to pay it off right away. This will build up a record of good, responsible borrowing and boost your report.

Know What Goes on the Report

As well as looking at your credit report, it is best to make sure you know what goes onto it. If you sometimes forget to pay your bills until you receive an overdue notice, this might seem harmless enough but it goes onto your credit report and brings down your score. Other things can be used as a surprisingly simple way to improve your score, such as making sure you are registered to vote. Familiarising yourself with the kind of things that can affect your score will help you make sure you are doing all you can to bring it up.

Stemming the Rise of Debt

Being in debt is not shameful. Most people experience being in debt at least once in their lives. However, while debt may not be shameful it can become deeply unpleasant. Sometimes the need to meet repayments will lead to building up more debt elsewhere in order to afford the cost of getting by.

If you are in a difficult financial situation and your debts keep going up, there are several things you can do to try and stem the increase.

Don’t Use Credit Cards for Cash Withdrawals

You need money to get by, and if you don’t have enough in the bank it can be tempting to use credit cards to withdraw cash. In fact, this can even look like a necessity. However, using credit cards for cash withdrawals should be avoided. Instead, you should just make the purchases directly with the card whenever possible. This will usually result in a better rate of interest than cash withdrawals.

Talk to Your Bank

Exceeding your overdraft limit, will usually lead to being hit with higher interest rates and additional charges. If you find yourself regularly needing to go over your limit, then try talking to your bank. Many major banks may be willing to increase your overdraft limit, which can avert these added costs and reduce the added burden it places on your debts.

Rearrange Your Debts

Borrowing from one place to pay off another is certainly not always a good idea, but there are times when it makes sense. For example, if you have built up debt on a credit card with a poor interest rate, it may be worth trying to obtain one that offers a better rate. This could help you clear the higher-interest debt on your existing card, as well as making future purchases at the improved rate. However, if you are struggling to meet debt repayments and are tempted to borrow from a higher-interest source, be extremely wary. This will almost always just make things worse further down the line.

Keep Stock of What you Owe

Some people try to wilfully ignore the exact amount they owe, because it is an unpleasant fact they do not want to confront. However, ultimately it is best to know how much you owe, to whom you owe it, and what the interest rates are. This will help you to get a better grasp on your situation, and focus your efforts on paying back higher-interest debts first.