Credit cards can be a
useful way to manage your money, but there are a few things to consider before
you start using one. This is what you should know.
What is a credit card?
A credit card is a type of bank card that allows you to
borrow money (credit) before paying it off with interest. They work as a type
of loan, but instead of getting money in an account, you get a credit to spend
using the card, before paying what you owe each month.
Types of credit cards
1.
There are several different types of credit
cards designed for different people and purposes, including those:
2.
Offer rewards based on how you use them
3.
Help you build your credit report.
4.
It allows you to transfer an existing balance to
a new card with less or no interest
5.
The type of credit card you needs will depend on
your specific circumstances - learn more about what's on offer in our guide to
types of credit cards.
How do credit cards work?
If you successfully apply for a credit card, you will
receive the card by mail. Separately, you will receive a Personal
Identification Number (PIN) to accompany the card. Once you get your card and
PIN, you must activate the card, often online, to make it ready for use.
You can use your credit card to make purchases before paying
the balance or a portion of what you owe each month. In general, you must pay
the minimum monthly payment to avoid any charges, but if you pay the balance in
full each month, you can avoid paying interest.
This means that if credit cards are used reasonably, they
can function almost like an interest-free loan. However, if you do not make
your payments on time, you may experience high fees and interest rates.
Responsible use of your credit card can bring you fantastic financial benefits.
Do I have to apply for a credit card?
If you are considering getting a credit card, you should
consider whether you are in the best place to apply. While it may differ
between service providers, they generally use the following criteria to
determine if your application will be accepted:
·
Your
financial record: Any county court judgment (CCJ) or bankruptcy in your
history may make your credit application less likely to succeed.
·
Your
earnings: Some service providers require you to earn regularly to qualify,
and some of them have the minimum amount that you must earn.
·
Your
credit score: Lenders look at your credit record, report, and use this
information to assign you a credit score. Since each lender generates its own
credit score based on its own requirements, you may have different grades with
different companies. Credit card providers use this result to determine if you
qualify for your credit card.
·
When you
apply for a credit card: you leave a record of your credit report, and the
more requests you make, especially rejected requests, it will be difficult to
obtain credit in the future.
·
This is because many requests can make lenders
believe you are struggling with your money or that you are an irresponsible
borrower. As a result, they may think that you are in danger of not being able
to get your money back in the future.
·
You can get more information with our guide on
whether you will be accepted for a credit card.
Benefits of using a credit card
Provided that you use them correctly, credit cards can enjoy
a number of advantages over debit cards and cash payments. These include:
Spread purchases:
With a credit card, you can distribute the cost of a large purchase, such as
devices, in several monthly payments. This can be useful in emergency
situations as you may find it difficult to pay for something you need right
away
Buy now to pay later:
It can also be a more convenient option to use a credit card, as it can allow
you to buy a product or service but not pay until the payment day arrives and
you can make your monthly payment
Get Purchase
Protection: Any purchase you make between £ 100 and £ 30,000 on a credit
card is protected under Section 75 of the Consumer Credit Law. This means that
if the transaction went wrong, for example, if the sales company declared
bankruptcy or if the purchase was wrong or lost, you can claim the cost from your
credit card provider. You can also request a refund if your credit card is
fraudulently used, as long as you are not neglected with it; read more with our
credit card security guide
Obtaining an
Interest-Free Loan: Some credit
cards are offer 0% interest period that allows you to effectively obtain free loan
as long as you make your monthly payments. Even if you pay the minimum amount
required each month, you will continue to receive interest-free loans until
this period ends. At this point, it will be best to pay off your debt completely;
otherwise you can pay the standard service provider fees again, which can be
very high. You can also refer to the standard price if you missed a payment or
exceeded your credit line. While interest-free credit cards can be a huge
benefit, they should be used reasonably.
Earning benefits and
rewards: Many credit cards come with many benefits and incentives that can
be helpful if you choose that occasion. For example, if you are an enthusiastic
shopper, you might consider redeeming a cash or store credit card perfectly,
while if you travel a lot from one country to another, you might prefer an
airline credit card. Read more about how to use our credit card reward guide
Reducing your debt:
With a balance transfer credit card, you can transfer existing debts to a
credit account, generally at a reduced or no interest rate. This means that it
reduces the amount of money you pay in interest, allowing you to pay off the
debt faster.
Increase your credit
rating: If you have a weak or limited credit report, credit originator
credit cards can offer you a way to improve your financial position and create
better lending habits. Since it targets people with a low credit rating, they
can often charge higher interest rates, but as long as you pay your
installments in full each month, you will not have to pay any interest.
Consistent payment of your balance means that you will be able to accumulate
your credit report slowly when you demonstrate that you can responsibly
borrow money over a long period of time.
Disadvantages of using a credit card
§
When using a credit card, you should be aware of
the following risks:
§
Debt Potential: The main risk of getting a
credit card is that you can get into debt if you cannot pay what you borrowed.
Some credit cards can charge high interest rates, sometimes more than 20%, and
this can be added quickly if you don't pay the balance.
§
Your credit score: Leaving your credit card debt
accumulating or not paying payments can affect your credit rating. The lower your
credit rating, the more difficult it will be to apply for credit in the future.
§
Fees and charges: Credit cards may also include
fees and costs if you do not meet your payment or if you exceed your credit
line. You should be careful how to use it
§
Limited use: You may be restricted in how and
where you use your credit card. For example, many of you will incur fees for
withdrawing cash or using the card abroad unless otherwise specified in the
credit agreement.
How can I use my credit card effectively?
To ensure you get the best results
from your credit card, keep the following in mind:
Never miss a payment: Lost payments can lead to fees and the loss
of some benefits, which makes it important to keep your balance, even if that
means paying the minimum monthly amount
Pay more than the minimum: however, it is generally best to pay as
much as possible, ideally the full amount. This can help you maintain control
of your balance and avoid getting into debt, and with interest-free credit
cards can be just as good as an interest-free loan.
Set up direct debit: If you think you may not remember making your
payment every month, you can try setting up direct debit for the minimum
monthly amount to make sure that you can at least make that payment
Take advantage of rewards: Credit card rewards can be a great
advantage of your credit agreement, but since they may sometimes cost you more,
you must take advantage of them when you can, otherwise you pay for a service
that you do not use
Get a card that meets your needs: so you should consider what you
will use for your credit card before applying. It wouldn't make sense to pay
more for an airmiles credit card if you don't travel a lot. If you have a lot
of debt, it is worth looking at balance transfer cards more than store or
supermarket cards
Use it reasonably: You must check whether your credit card fee is
for withdrawals or used abroad. If you think you will do any of these
procedures, it is best to find a credit card that provides these services for
free.
The timing of your applications: Applying for a credit card can
leave a mark on your credit report, many of which are generally indicative of
poor finances. Syncing your apps and using the Money Supermarket Credit Card
Eligibility Checker can help you submit an application with the best chance of
being accepted.
Compare credit cards with MoneySuperMarket
Finding the right credit card is
easier when you compare your options in MoneySuperMarket. All you have to do is
tell us a little about yourself and your money, including details about your
business and your income and what you will use the new card for.
After that, you will get a list of
credit cards that meet your needs, and you will even be able to know which
cards are more likely to be accepted by applying with the credit card
eligibility checker. In this way, you can reduce the risk of applying for a
card and help keep your credit rating correct.
Once you find the card you want,
just click the provider to complete your order. If your provider approves your
request, they will inform you of your credit limit and interest rate. Once you
reach the post, just activate it, then you're ready to go.
