Credit cards can be a handy tool for helping you to manage your finances. You might have heard horror stories about how credit cards can be damaging to your credit score. But when used responsibly, you can get many different benefits from using a credit card, including payment protection for more significant purchases such as holidays or appliances.
While a credit card can effectively build your credit score, you need to be aware of the credit risk strategy employed by many lenders, which can affect the type of credit card on offer to you and the interest rates offered.
Before applying for a credit card it is vital that you know exactly what you are applying for before signing your agreement.
Check your credit score before applying so you know your chances of success and avoid refused applications that can harm your credit score.
It is recommended that you thoroughly check your personal information with all of the credit reporting organisations to ensure that all of the information held is current and accurate. Most credit reporting services (Experian, Equifax, CallCredit, among others) have a free trial period during which you can receive your report without incurring any fees. It is important to note that you must terminate your subscription if you no longer require their services. If you do discover any discrepancies, you should notify the relevant agency immediately and request that they correct the error as soon as possible (they may need proof that the information is incorrect).
It is not advisable to submit many credit card applications in rapid succession. Taking this action will leave a mark on your credit history, making it significantly more difficult for you to obtain competitive credit in the future. Even if you are confident in your ability to obtain financing, you should do an eligibility check ahead of time which is a soft search and only visible to you, not to other lenders. This will provide you with an indication of your prospects without negatively impacting your credit score.
You may be eligible to receive tax-free cashback from some credit cards, which is typically credited to your account once a year. These cards, however, are only worthwhile if you pay off your credit card account in full each month; otherwise, the interest you accrue will overwhelm any benefits you receive.
From time to time, there may be a problem with something you purchase — it could be missing parts or damaged, for example, or the firm could go out of business entirely. The use of credit cards provides you with buyer protection for any transactions made between £100 and £30,000 using the card. It means that if there is a problem with your goods or services, you can get your money back from the credit card company that issued the card.
Rewards for Spending
Reward credit cards work in the same way as cashback credit cards in that they pay you something back for every pound you spend, but instead of cash, you earn points or vouchers. Because most cash back cards give a more generous point allocation when you spend in connected retailers, they may be a better choice if you are not loyal to a particular retailer or do not want your rewards in the form of vouchers.
Using a credit card allows you to purchase something today while deferring the actual cost until payday arrives – enabling you to avoid having to wait. If you need to make a large purchase, a credit card will allow you to spread the payment across numerous monthly payments. This can be beneficial for budgetary purposes, and it will not leave a significant hole in your financial situation.
Boost Your Credit Score
Poor or insufficient credit history may make it difficult to qualify for the most favourable credit terms and conditions. On the other hand, some credit cards are created explicitly to help you improve your credit rating so that you can get better bargains in the future. Always keep in mind that these are more likely to have lower credit limits and higher interest rates than other options, so you should make sure to pay the account in full each month.
When used responsibly, a credit card can be highly beneficial to many people. It gives you the opportunity to practise being responsible with your money and help improve your credit score if required and offer you perks. The better your credit score, the better you will get.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.