Tips On Using Your Credit Card Responsibly

The recession has made us all tighten our purse strings, and that includes the number of times we use our credit card. However, don’t put them away for good as they are still a convenient, and sometimes rewarding, way to pay – as long as you use them wisely.

Follow our top tips to using your credit card responsibly.

1. Learn to Budget

If you find yourself overspending on your card when finances are less-than rosy, draw up a monthly budget of income and outgoings, including repayments of any loans. That way you can see where to cut back.

2. Stick to the limit

Try not to go over your credit card limit or there will be extra charges to pay. In theory, you shouldn’t be able to exceed your ‘limit’, but in practice, card companies often allow this and then apply penalty fees and interest on the excess borrowing. Therefore, check the balance regularly, and if you think you might go over, speak to your provider about increasing your limit.

Note: increasing the credit card limit may help you avoid penalty fees, but your level of debt will increase, which could cause greater headaches in the long run.

3. Buy big items on plastic

Paying for more expensive items with a credit card can actually protect your purchases. How? Well, for example, if the company you bought an item from goes bust, your credit card company will refund the amount under section 75 of the Consumer Credit Act. This is because goods or services costing between £100 and £30,000 are covered by the act.

4. Pay off your balance

Try and pay off your credit card in full on a monthly basis. Most companies don’t charge interest if you pay off the balance within a month so you could be using their credit for free. If you can’t pay the full amount, pay as much as you can afford to minimise the amount of interest you’ll pay over the long term. Always pay off at least the minimum each month to avoid any penalty fees.

5. Don’t withdraw cash

Try not to use your credit card to withdraw cash. A card company’s highest-interest rates are reserved for any money you take out from ATMs using a credit card.

6. Transfer your balance

Transfer any outstanding debt from a higher-interest credit card onto one with 0% interest on balance transfers. There is usually a minimum charge or around a 3% fee on the amount you’re transferring, but the zero interest rate could save you money through reduced payments over the long term. But remember, the more times you do this, the more credit checks will be attributed to you, which could affect your perceived creditworthiness. You can read more about credit scoring here.

7. Set up a Direct Debit

If you’re thinking about buying a house, having a good credit score could help you get a mortgage. A credit rating is built up by demonstrating fiscal responsibility through meeting payment commitments regularly and reliably. One way to do this is by consistently paying your credit card bill on time. Set up a direct debit to pay at least the minimum off the credit card bill each month. That way you won’t be late with your payment and you’ll avoid those nasty £12 fees.

8. Steer clear of store cards

Store cards might offer discounts on your first purchase, but the interest rates are typically much higher than normal credit cards. Many store cards have interest rates around 30%, compared to around 16% on normal credit cards.

9. Don’t take out too many cards

Having too many credit cards can be a headache to manage. You have to keep on top of multiple repayments in order to avoid late fees, plus more available credit increases the temptation to spend, and therefore the possibility of debt problems. Also, lots of cards means lots of ‘footprints’ all over any credit history (follow the link to learn more about credit reports). Why not return any unwanted plastic to the issuer or cut them up to reduce any temptation to spend, spend, spend!

10. Refused a credit card? Consider this alternative

If you have been refused a credit card but fancy the convenience of plastic, consider a prepaid card instead. Prepaid cards look and work just like credit cards, but it’s your money you spend rather than the lender’s, and therefore no credit check is required.

Simply charge the card with your own funds up to the desired amount, and then use it as you would a credit or debit card. Prepaid cards are perhaps one of the most responsible forms of plastic as it’s impossible to overspend with them, i.e. you can only spend as much as you put on the card in the first place, and not a penny more.