It’s really important to spend responsibly, but it’s not always obvious what this means, especially with a credit card.
Here, we’ll give you some tips on being a responsible borrower when using your credit card. If you follow the five steps below, you should remove the risks of missing payments and see your credit history steadily improve.
1. Don’t spend beyond your means
The most important things to remember when you use a credit card is not to spend more than you can comfortably afford to repay. Just because the card provider has given you a credit limit of – say – £1,000 doesn’t mean that you should go and spend that much! It may be tempting to splash out but you should avoid this.
Remember that every penny you borrow will have to be repaid – usually with interest as well. And if you repay just the minimum each month this means you could be clearing your debt for months or even years. And if you are late with a payment, or miss one altogether this could kick-start a cycle of money troubles, as you will be hit with costly charges and your credit history will suffer too.
2. Set up a Direct Debit
Setting up a Direct Debit to clear your balance is a smart way to ensure you won’t be shelling out late payment charges or suffering damage to your credit history if you miss a payment.
You can choose to either cover the minimum payment each month, or to clear the full balance. In either case, you won’t have to pay any late fees or charges and your credit history will gradually improve. If you choose to make the minimum payment, you’ll still pay interest on the outstanding balance, but it won’t negatively impact upon your credit history.
3. Time your payment date well
Often, credit card providers will allow you to choose your payment due date. You’ll usually be given up to the standard 56 days from the date your credit card was activated. The date of the month after those days becomes your monthly repayment date.
To ensure you’re covered come your payment due date, choose a date that coincides with your payday. So, if you get paid on the 1st of every month, allocate your due date as (say) the 3rd or 4th – this gives you a couple of extra days in case your pay doesn’t arrive on time. This way, there will be less chance of you spending your wages before you are due to make your monthly payment – and then struggling to make it.
4. Stick within your agreed credit limit
When you take out a credit card, you’ll be given a credit limit based on your individual credit history and circumstances. It’s important that you’re aware of this limit, as spending above it can be costly, damage your credit history and may cancel any promotional offers or rewards you receive.
Sticking within your limit is really important, but you may demonstrate to lenders that you’re a responsible borrower by not reaching the upper ends of your limit at all. Card providers may consider people getting close to “maxing out” their card as suggesting that their finances are getting out of control.
5. Keep your credit card to yourself
Allowing anyone else to use your credit card, even if just temporarily, is a bad idea. As well as the fact you may be breaching your credit agreement by doing this, it also opens you up to the possibility of fraud. When it’s not in your hands, you can have no guarantee of where the card is – and if you find unauthorised transactions on your account you may be liable for them if you have allowed friends or family members to use it.
This isn’t the only thing to worry about – you could also face costly interest and charges if the person who borrows it uses it to withdraw cash.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.