Why should I get a credit card?
If used right, credit cards can be an incredibly useful tool to help you out in the event of an emergency, spread the cost of big purchases, and improve your credit history. Better yet, many of them come with a bunch of attractive rewards or cashback schemes attached to them, so you could actually make money as you spend it.
When you might use a credit card
Here are a few examples of when a credit card might come in handy:
- your car unexpectedly breaks down, it’s essential for your job, but you can’t afford the repairs. You could put the cost on your credit card and repay it with more manageable monthly instalments and still get your car fixed right away
- if you’ve got a poor or non-existent credit history, responsibly using a credit card could help demonstrate your new and improved money management habits
We’ll delve into the advantages (as well as some all-important disadvantages) of credit cards a little later on, but for now, we’ll leave the ‘why’ on that note.
Do I need a credit card?
Need is a strong word. Although credit cards can be useful for the reasons we just mentioned, they’re not a necessity; there are other workarounds. For example, you could turn to your savings or family members in the event of an emergency - and just paying your bills (like gas and electricity) will aid your credit building efforts.
However, if you can trust your spending, stay within your limit and fully pay off your balance in time each month, credit cards can be a financially savvy and more convenient borrowing option, and offer more protection, incentives, and independence.
When should I get a credit card?
You can’t take out a credit card until you’re at least 18 years old, but, even then, you should only consider applying for one if you’re confident in your ability to repay it. If getting a credit card would put too much pressure on your finances, it wouldn’t be a wise move.
Credit cards should be seen as a convenient financial companion, not something to rely on.
If they’re used in desperation to finance things here, there, and everywhere, your spending can soon become out of control and turn into an unmanageable pile of debt - especially when the interest starts adding up.
Only you will know if you should get a credit card, but as a general rule of thumb:
- if you’re financially comfortable and responsible, yes, go ahead
- if you’re already struggling with other lines of credit and/or you feel out of your financial depth, it’s best to hold off until you’re in a better position in the future.
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Advantages and disadvantages of a credit card
- whether you’ve made one big purchase or a string of smaller ones, credit cards allow you to spread the cost of your spending with more manageable, monthly amounts
- credit cards can be a more affordable way to manage debt. Balance transfer cards are designed specifically for people to transfer their existing debt to, and many of them come with lengthy 0% introductory periods - some are up to as much as 40 months. Balance transfer cards can be particularly useful for people who want to consolidate multiple balances on to one card so that they only have one monthly payment to manage rather than several. The main benefit to you? You have only one monthly credit card payment to think about, rather than several. If you are able to obtain one with a lengthy 0% introductory period, you can focus solely on clearing your debt without the cost of interest getting in the way
- if you’re confident you can clear your balance in full every month, some credit cards come with nice rewards and/or cashback incentives attached to them. A couple of things worth noting for this point though, is that these are a) often only reserved for people with the best credit histories, and b) can come with high interest charges
- sticking with the interest theme, if you don’t clear your balance in full every month you’ll be charged interest on whatever you’ve spent. The longer this goes unpaid the more interest you rack up, making what was an inexpensive purchase at the time pretty pricey
- if you break the terms of your credit agreement (by going over your credit limit or missing a payment, for example) you’ll be charged a fee - this is usually around £12 per breach, but check with your provider
- Missed or late payments can put a serious dent in your credit history and make it harder to borrow down the line. This is why it’s super important to only take out and use a credit card if you’re confident you can meet your repayments. After all, you don’t want a missed credit card bill now to affect your mortgage chances in the future
- different lenders will give you different credit limits - but it’s a limit, not a target. If you can’t trust yourself to only spend what you can safely afford to repay, credit cards can quickly kickstart an unhealthy spiral of debt
Should I get a credit card if I have bad credit?
If used responsibly, getting a credit card can actually improve your credit score over time. You’ll need to meet your repayments on time and stay below your limit - and not doing so could harm your score.
Something like a credit builder credit card could be a viable route to go down, but there are a couple of things you should know about these though:
a) they usually come with a fairly low credit limit - however, if, over time, you prove you can use your card responsibly, it’s likely this could be increased
b) to reflect the greater risk lenders are taking, these kinds of cards normally come with a higher interest rate.
Credit card eligibility
There are three key criteria you must meet to be eligible for any type of credit card:
- you must be 18 or over
- you must live in the UK
- your annual income must be over a certain amount.
How to get a credit card
Nowadays, applying for a credit card is pretty easy; the entire process can be done online and take as little as 10 minutes.
First things first though, do your research. Numerous rejected applications don’t look good on your credit history, so make sure you only apply to lenders who are likely to accept you.
When you’re doing your research, pay attention to things like interest rates, credit limits, charges, and fees.
During the application process, you’ll generally need to supply the lender with your:
- date of birth
- employment status
- annual income details
Then, all that’s left to do is see if you’re accepted (this will usually be an instant response) and wait to receive your card in the post if you are.
How many credit cards should I have?
There’s no right or wrong answer to this one, it all depends on your personal circumstances and whether or not you’re confident in your ability to keep on top of multiple lines of credit.