Credit cards are used to spread the cost of paying for items, or to defer the date that you pay for them.
If you can’t afford to pay for something outright, you might use your credit card to cover the cost so you’ll be able to just pay a smaller amount towards it over a longer period of time. But can you be in credit on a credit card?
If you’re not really sure how credit cards work, you might not know whether you’ll be able to put a credit balance onto your card. Will you be able to pay off more than you owe, effectively keeping money stored on your credit card? Let’s take a look at the facts, and see how credit cards work.
If you make a payment to your credit card that’s more than your outstanding balance, you will go into credit. This will usually show up as “CR” next to your balance on your statement. It is also possible to go into credit if you get a refund back onto your card. Say you buy something on your card, pay off your balance, then have to return the item and get a refund this will go back onto your card and leave you in credit.
You won’t earn any interest on your credit balance and there is no real advantage of being in credit on your card.
There’s also a misconception that overpaying on a credit card will improve your credit history. This isn’t true – even if you’re able to temporarily overpay on your credit card, it will still show as a zero balance on your credit report. The only thing that will affect your credit history is if you miss a monthly payment on your credit card and it counts against you as a late or missed payment.
Using the card
When you use your credit card to pay for something in a store, a restaurant or online, you’re borrowing the money to do this. This adds to the balance on your credit card and you’ll be given a time limit – usually up to 56 days – to make your monthly repayment. If you can’t afford to pay it all in one month, you don’t need to worry – you only have to make the minimum payment by the due date to avoid missed payments charges and a mark on your credit file. However, be aware that if you only make the minimum payment each month it could take you years to pay the debt off and cost you a lot in interest.
Making payments to your credit card just means paying off the money you borrowed on it. You’re not really loading any money to the card, which is why you don’t usually go into credit with the card.
If you’ve never borrowed money before, taking out a credit card could be a good place to start building up your credit history. By borrowing small amounts of money – and paying it back responsibly – you’ll be able to demonstrate to lenders that you’re able to manage credit.
One card that you might consider is the Ocean Credit Card. The card comes with a rate of 39.9% APR representative variable and allows borrowers to keep a tighter control of their money with a credit limit of £200 to £1,500. How much you get offered with depend on your credit history so if you’ve had problems borrowing in the past or you’ve never borrowed, you may get offered a lower amount.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.