Putting Christmas spending on plastic? 12 do’s and don’ts for using credit cards
Christmas costs can soon add up – meaning it’s a time of year when some people reach for their credit cards, or make new applications for credit, to make their spending more manageable.
Used wisely, credit cards can be a handy way to pay, but there are also some pitfalls to avoid.
Here are some dos and don’ts from MoneySuperMarket (moneysupermarket.com) to make the most of credit cards….
1. DO use plastic to improve your credit rating
Using a credit card responsibly can help show you’re a responsible borrower.
People with low ratings may want to use credit builder cards to improve their score. Those using these cards responsibly might see their credit score improve in four to six months, which could help them qualify for better deals.
2. DO pay off what you owe in full each month
If you don’t pay off your balance in full, interest could start to build up.
By paying off your balance each month, you can ignore the monthly interest rate charged.
3. DO look out for zero interest deals
Some cards will offer 0% on purchases for a specific period, or 0% on outstanding balances transferred from elsewhere.
Balance transfer deals can stop you paying expensive interest elsewhere – but bear in mind any fees for moving the balance over.
4. DO set up a direct debit to pay off your card
With Christmas being a busy time, it may be easy to forget a credit card payment is due.
To avoid missing a payment – which could hit your credit rating as well as resulting in additional charges – set up a direct debit to pay off either the whole balance, or at least the minimum amount each month.
5. DO use cards to spread the cost of a big purchase
If you’ve got a big purchase coming up, a 0% purchase credit card deal can be a good way to spread the cost. Just make sure you’ve paid it off before the interest-free period ends.
6. DO look out for cashback and rewards
Cashback credit cards give you money back as a percentage of your spending, while reward cards can provide perks such as air miles or points with supermarkets, retailers and travel companies.
Depending on what type of card you choose, your everyday spending could help fund your next holiday or your Christmas grocery shop.
7. DON’T forget the small print
It may not be the most exciting read, but go through the terms of any credit card you’re considering. Find out about all the fees and rates, and make a note about when any introductory deals end – to avoid paying interest on your balance.
Failing to read the full terms could lead to nasty surprises, such as charges for withdrawing cash or using your card overseas.
8. DON’T spend without a repayment plan
A plan will make it easier to keep track of the amount you need to pay to be debt-free within a certain time frame. If your balance is creeping up, it could be worth seeing what spending you could cut.
9. DON’T max out your limit
MoneySuperMarket suggests generally trying to use no more than 25% of the credit available to you. So for example, if someone can borrow £2,000 on their card, try not to use more than £500 at any one time.
10. DON’T make multiple applications quickly
Each time you make a full application for credit, a “hard search” will be reported on your credit score. If you get turned down, it can have a negative impact.
It is possible to make “soft” preliminary searches that won’t have an impact. MoneySuperMarket and other websites have eligibility checkers.
11. DON’T forget to monitor your credit score regularly
If you think a credit card is for you, it’s useful to know what your credit score is, because it will likely have a bearing on the type of cards you can have.
12. DON’T forget about your consumer rights
Credit cards can give people added rights if something goes wrong with a purchase.
Section 75 of the Consumer Credit Act makes credit card companies jointly liable with retailers for goods and services costing between £100 and £30,000. Remember, the card company remains liable even if you paid just a partial deposit on your card.
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