Is getting a Credit Card a good idea?

The good news? A credit card is essentially a free unsecured loan – instant access to Money at your disposal. The bad news? If you don’t treat it with the utmost respect and repay it on time, your debt has the potential to skyrocket.

Is getting a Credit Card a good idea?


What do the different types of Card mean?

Credit cards are categorised and offer promotions according to why you need the money:

- Money to buy something (Purchase card: 0% spending promotion)
- Money to transfer to another credit card (Balance transfer card: another credit card is nearing the end of its promotional period and you need to repay)
- Money to move to your debit account (Money transfer card: pay off overdraft/debt)
- Money to get a reward for spending credit (Reward Card: for frequent flyers / brand loyalty shoppers)

Always remember to check your eligibility on comparison sites before formally applying for a credit card. An eligibility check will tell you if your application is likely to be accepted and does not appear on your credit history and will not affect your credit score. Formally applying for a credit card appears in your history and does affect your score so it’s useful to know if you’re likely to be successful…

What is the best way of managing Credit Card Repayments?

Mr Finance recommends 3 steps to ensure your credit card remains your best friend.

DAY 1: SET UP A DIRECT DEBIT… from your debit account to your credit account. There will be a statutory minimum (usually 2-3% of borrowing). The best route to full repayment is do your maths… for example, if you have a purchase card and you have borrowed £6,000 for a big purchase, and the promotional period is 12 months, set up a direct debit for £500pm to ensure you’re not caught out in a year’s time.

ALSO, DAY 1: Set yourself calendar reminders for half-way through the promotional period and one month before and one week before just so you check in with your credit card. Like any relationship – communication is key.

If you’re not able to repay – search for the best balance transfer cards and move the debt before the end of the promotional period

Can you have lots of Credit Cards going at the same time?

When you apply for a credit card, that search gets flagged against your credit score. Therefore, you should not make a lot of applications at the same time as that will reflect badly on you and lenders will not be inclined to lend to you. Space them out by a couple of months.

Once you have a credit card, it is important for your credit score that you monitor your credit utilisation. Your credit utilisation is how much of your limit, you are using. For example, if you have a limit of £4,000 and you’ve used £1,000, the utilisation is 25% (a quarter of your limit). This is the ideal place to be with your card.

Therefore, if you need £4,000 – it’s better to spread that over two or three cards. HOWEVER, this can be a massive temptation for some people so unless you are very strict with yourself, it’s not the route to recommend.

You should strive to be using 25%-35% of the total available credit to you whether that’s on one card, or four cards. This will actually help increase your credit score as you’ll be seen as a responsible borrower.

Should I close the Credit Card once it is paid off and not in promotional period anymore?

There are pros and cons to closing a credit card.

Pros: 1. it’s safer, as an unused account could be a victim of fraud. 2. You won’t be tempted by having it sitting there, available to you.

Cons: Having the credit card open and unused means your credit utilization will be very low which will increase your credit score.

So, is a Credit Card the right choice?

It all comes down to what kind of person you are. We’ve all heard horror stories about when credit cards turn bad; it takes real personal discipline to make credit cards work for you.

If you look in the mirror and can honestly promise:

1. you will respect your credit card as you would a loan

2. you will structure your repayments from Day 1

3. you will not borrow more than you’re able to pay back

…then successfully applying for, and managing, a credit card is the best and cheapest method of borrowing money in the short term.


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