Credit cards are useful for a wide variety of reasons, but they might not be right for you. The most important detail to remember with credit cards is to pay off the balance at the end of every month. This will make sure that you don’t start falling into debt. So should you get a credit card?
First of all, credit cards can help you pay for bigger purchases that you normally couldn’t afford at that moment in time. For example, if you need to buy a new phone as yours has broken, but you don’t get paid until the end of the month, a credit card will allow you to pay for the phone and pay off the balance at a later date. So long as you pay off your balance at the end of the month, you won’t have to pay interest on the money you borrow either!
Secondly, credit cards offer a layer of protection. This is known as Section 75, and essentially means that if a product or service is faulty, doesn’t turn up or isn’t as was described, then your credit card provider can offer compensation alongside the retailer. This is valid for purchases between £100 to £30,000, and includes products such as phones or cars. Section 75 also covers you if the retailer goes bust. However, there are a few exceptions, for example if you buy a product through a third party. A good example of this is when buying off Amazon marketplace.
Another perk you can get with credit cards is the rewards systems that may be available. With some credit cards, you get points for money you spend. Instead some actually reward you with money, and these points or money can be used on whatever your heart desires.
As well as all of that, credit cards are very useful for travel. This is because Section 75 (the extra protection) still protects you if you are abroad. As well as that, when you use a credit card abroad, you can get the bank’s best possible exchange rate when you pay in local currency. With some cards though, there are fees that you have to pay, so check what fees there are before spending abroad. Also, if you lose your card while abroad you won’t have to pay any of the charges put on after it is lost. However for this to hold, you must have been sensible with your card, so not telling everyone your pin number.
Credit cards can also help you build your credit score. While credit scores are not the be all and end all, a good credit score can help you in later life. When you want to buy a house or a car, a better credit score could help you get a better interest rate. However, a bad credit score will do the exact opposite. If you get a credit card and use it sensibly, this can help you build a healthy credit score. But beware. If you fall into arrears, or worse get a default or court judgement registered against you, it could wreck your chances of getting competitive loans and mortgages for years. A default or court judgement is where a lender takes formal proceedings against you to recover the money it lent you.
Only Payment Method
Finally, even now some companies will only accept credit cards as a method of payment. This is normally the case with reserving a hotel, or renting a car. This is because companies have greater protection when you pay with a credit card in case you run up any additional costs.
Types of Credit Cards
When you are looking to get a credit card, there are a few different types with different benefits.
This card helps you reduce the interest on your existing credit card debts. Essentially you are moving the balance of one card over to another. This allows you to benefit from 0% interest for a set period of time. While you usually have to pay a transfer fee, in the long run this normally saves you money!
This card is the best option for shopping, and is the simplest out there. This normally allows you to have 0% interest on purchases for a longer period of time. This means you won’t have to pay off the balance every month. However, you should make sure you have paid off the balance before the 0% interest period ends.
Balance transfer and purchase
These cards combine the advantages from the previous two. However, the 0% interest period is usually much shorter, and so there is less flexibility there.
A cashback credit card rewards good spending habits by giving you a percentage of your spending back. This is usually between 1%-5% cashback. However, cashback credit cards usually have higher rates of interest. This means if you build up debt on your card, it could cost you a substantial amount in interest payments. This card is really only an option if you are going to pay off your balance every month.
This is a card designed for people who don’t have a good credit score – so often can’t get a standard credit card. A credit builder card is more expensive to use but it does allow you to build up a history of transactions and paying on time. This can improve your credit history so eventually you can get a better card and maybe qualify for cheaper loans.
Rewards cards are very similar to cashback cards. However, instead of paying back with cash, these cards offer rewards points. This can vary from airline points to buy flights with to supermarket points to buy food with.
These cards are offered at various stores, and seem very enticing at first. Many of them offer 10% off your first shop with that card or similar promotions. However, they also tend to have very high interest rates, meaning that there are normally much better options available for you.
With these cards, every time you spend you will be donating to charity. They work in a very similar way to cashback cards. However, the amount actually donated is usually very small. If you want to donate to charity it may be better to get a cashback credit card, and donate your cashback to charity.
When you spend overseas with a standard credit or debit card, there is usually a transaction fee of around 3%. This may not sound like much, but it can add up. With an overseas credit card, these fees are normally much reduced or just not required, making spending on your holiday much cheaper.
Important Rules for Credit Cards
The first thing you should do is set up a direct debit from your bank account. This means that the money you owe on your credit card will automatically be paid off at the end of the month. This means that you won’t miss a payment on your credit card, and so you won’t face penalty fees, interest and any other negative effects.
You should also actually use your card. While this may seem obvious, many people leave their credit cards for larger purchases while using cash or debit. This means that you are missing out on any of the rewards you could get, such as actual cash, increased protection and more. Using your card and paying it off quickly can also help you build up a better credit report.
Don’t apply for too many credit cards. Every time you apply for a credit card, the provider has to check your credit record. These credit checks are then recorded on your file, and if you apply for too many it throws up alot of red flags for providers or lenders. Having too many applications could be a sign of having large amounts of credit card debt, or leads providers to think you are a bad borrower.
Credit cards are a good tool to conveniently make payments and should be cleared each month.
If you use them as a loan and don’t clear the balance they can soon become very expensive and out of control; leading to serious debt issues.
Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Promise Money is a trading style of Promise Solutions Ltd – Company number 04822774Promise Solutions, Fullard House, Neachells Lane, Wolverhampton, WV11 3QG
Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
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