Using a credit card to cover the cost of things you can’t afford to pay for outright is no bad thing, but are you managing your cards responsibly?
We take a look at the top 10 credit card habits you really could do with breaking.
1. Don’t spend outside your means
While the credit limit on your card might be tempting, it’s important to remember that whatever you spend on your card you will need to repay – with interest! Use your card responsibly and be sure not to spend more than you can comfortably afford to repay.
2. Missing the deal
Taking out a balance transfer card at 0% APR can be a great way to manage your borrowing, as you won’t have to pay any interest on your credit card balance during the offer period. However, make sure you know when the 0% introductory deal ends, or else you could get caught out when the APR increases. Plan to finish paying your balance off before the interest rate goes up, and, if you’re prone to being forgetful, set a reminder in your calendar to make sure you don’t forget.
3. Give your credit report some love
If you only check your credit report just before you make a big credit application, like taking out a loan or mortgage, you could be missing out.
Your credit report is affected by how you use your credit card and even how you manage your mobile phone contract, so it’s important to check it regularly for any errors.
Check it least once a year to make sure that everything’s right through at least one of the main credit reference agencies: Experian, Equifax, or Callcredit.
4. Credit for cash
When you withdraw money from an ATM, do you pay attention to the card you pull out of your wallet? Recent research* carried out for us found that two-fifths of credit card users have used it to get cash out of a cashpoint. You might do this by accident, if you’re not paying attention, for example, but it could actually be quite a costly mistake. Interest is added to these transactions automatically, whether you pay it off in the interest-free period or not, and you may even have to pay a cash handling charge. So, always check you’re putting the right card in the machine!
5. Using it for other credit
If it comes to the end of the month and you can’t afford your loan or other debt repayments, you may be tempted to just stick this on your credit card. However, paying for credit with other credit can be dangerous as really, you’re not actually paying anything off, you’re just covering how much you owe with more borrowing. It’s different if you take out a balance transfer card and move a loan onto this, but this should be a planned strategy – not something you do as a last resort because you can’t afford to meet your payments.
6. Bills, bills, bills
Covering essential bills on credit – such as your rent, utility or water bills – might seem convenient if you can’t afford to pay them when they’re due. However, it could mean that you’ll get stuck in a cycle of paying for your bills with your credit card every month, and that’s not a good place to be. Make sure you pay these priority bills first and have a look at your budget to see if there’s anything you could be saving money on. If you’re really struggling to manage your finances, you might want to ask for help from a financial expert to work out a new budget.
7. Making minimum payments
You don’t have to pay off the full balance of your credit card every month, so you might decide instead to just meet the minimum payments. This could mean that it could take years to clear the balance, and you’ll end up paying hundreds or even thousands of pounds in interest. If you can afford to pay more than the minimum, or even the full balance, you should aim for this, as it will be cheaper for you in the long run.
8. Having too much credit
While there’s no limit to the amount of credit cards or store cards you’re allowed to hold, you should try to make sure you don’t take out more than you need. Not only will this provide temptation to spend, but it could also affect your credit score. Lenders will see how many credit products you have on your credit report when deciding whether or not to let you take out a loan or a mortgage, so if it looks like you’ve got too much available credit, this could count against you.
9. Claim your rewards
If the main reason you took out a particular credit card was because of the air miles on offer, or other rewards that came with it, make sure you’re using them. You could be missing out on some great deals, so check if you’re entitled to any.
10. Making late payments
Each late or missed payment will have an effect on your credit rating, which will in turn affect your ability to take out credit. If you know that you can be forgetful, or just if you want an extra precaution against this, set up a direct debit or standing order to make at least the minimum payment on your credit card.
Now you’re aware of some of the bad credit card habits you would do best to break, you should be able to class yourself as a responsible borrower – providing you keep to the 10 pieces of advice offered here. So, if you’re currently looking for a credit card, Ocean might be able to help you.
*OnePoll questioned a nationally representative sample of 2,000 adults aged 18 and over between 11th February and 23rd February 2015, of whom 635 were in Scotland
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.