Credit cards can significantly change the way you run your finances. Sensible use of a credit card can help you to manage your finances in a reasonable manner and give you the flexibility to buy what you want, when you need it.
However, while they offer many great advantages and benefits, there is always a danger that your credit card spending can get out of control unless you take some precautions. For example, one of the first things to consider should always be whether buying on your credit card is the most effective and cheapest way to do so. In some cases it may not be so prudent to make a purchase on the card, because by the time the bill comes around it may be that other financial pressures are weighing down on you.
Credit scoring
Credit card providers will credit score you on application for a card. This means that they will award 'points' to your application, depending on what answers you have given on the application form.
This way, the credit card company can work out how big a risk you are in terms of your likely ability to repay the money you borrow on the card. If you fail to get a sufficient number of points, the credit card provider may decide not to accept your application or could accept the request but charge you a higher rate of interest.
Such credit scoring systems will take into account a range of factors and they are used in a number of fields, including mortgage, current account and personal loan applications.
However, owning more than one credit card - or even applying for more than one - can harm your chances of being approved by the credit card provider, due to the fear that you will be borrowing more than you can repay across the different cards.
You are especially likely to be refused a credit card if your applications are made within quick succession of each other.
Sensible spending
Credit cards should never be seen as 'free money'. While they do offer more grace than a debit card in the amount of time between spending and paying, the important matter of repayment is never far behind.
It is therefore important to make sure that whatever you spend on your credit card can be accounted for as part of your overall budget.
Keeping your credit record healthy is important so as to ensure that you are not blacklisted or refused credit in the future. One of the easiest ways to find yourself denied a credit card or loan at some point in the future is to rack up large debts on a credit card and get into financial difficulties. Further, mistakes from the card provider or credit card fraud could also see you blacklisted through no fault of your own. It is therefore vital to keep a close eye on your credit card bills and deal with any anomalies immediately. This is because if you find that you have been blacklisted only when applying for another card or a loan, it could have result in you being denied the new application before having had a chance to sort out the initial problem.
Reviewing statements
One of the most important ways to keep track of your finances is to regularly review your statements. This is particularly the case with a credit card, where it might be easy to forget what items have been purchased on it and how much you will be able to repay come the end of the month.
Each month it is important to check your statement thoroughly. Not only is this important as a way to keep track of your finances, it is a vital way to ensure that any instance of credit card fraud is discovered as early as possible and dealt with.
If errors do occur on the statement it is imperative that you contact the credit card company immediately to register the problem, as it could become difficult to rectify the problem once you have begun paying back what is owed.
The internet is now increasingly being used by savvy consumers to keep track of their finances and checking on credit card transactions is no exception to this.
Online security has become incredibly tight over recent years, making it much harder for hackers to gain access to financial details and giving consumers greater peace of mind when banking online.
Using the internet to keep a check on your credit card spending means that you will not have to wait until the end of the month to see how much you need to repay, therefore allowing much greater control over your own finances. However, where using the internet is not an option, it can prove useful to keep a list of what you spend on a credit card in the old-fashioned form of a pen and paper. This works equally as well as checking online - provided you always remember to note down your credit card spending - and means you can avoid going over-budget without realising it.
Paying cards off each month
When you receive your credit card statement at the end of each month, it is possible to pay off the entire amount in one go, or make a minimum repayment. This minimum will depend on the credit card provider and the statement should also provide an estimate of how much interest will be charged on the outstanding balance if you only pay off the minimum amount.
While it may seem like a good idea to only pay off the minimum amount each month, this can prove an exceptionally costly way of using your card and could force you into significant debt unless you keep a close eye on your monthly statements. This is because the interest will continue to mount up every month on top of what you already have to pay.
Therefore, it can often be advisable to completely pay off your credit card bill on a monthly basis wherever possible.
However, one exception to this general piece of advice is in the case of credit card companies offering nought per cent interest on their cards, when it may make sense to only pay off the minimum repayments. But it is worth remembering that such deals are usually only for a limited period and as such it is important to remember how many months such deals run for, so that the card can be clear of any outstanding payments before the interest kicks in.
To compare credit cards from the UK's leading providers click here.
Author: KYM Editor
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