Vikash Raghuwanshi
if you’ve never had a credit card before it can be tricky to know where to start there are loads of cards to choose from and a whole load of jargon to try and get your head around plus if you get things wrong you could end up in a bit of trouble but don’t worry we’ll take it slow so firstly what is a credit card a credit card essentially lets you borrow money to pay for things and pay it back each month with interest in most cases it looks like a debit card but you’ll be using credit instead of money from your
bank account so essentially every time you spend on your credit card you’re taking on debt and then each month your spend is toted up and you’ll send a statement so this will show you how much you owe the interest the minimum payment and the date you need to pay it by you can choose to clear your balance each month or make at least the minimum repayment however the smaller the repayment the longer it will take to clear the balance and the more interest you’ll have to pay though you can get credit cards from a number of different
banks they’ll be issued by either Visa Mastercard or American Express so why get a credit card well credit cards can be really useful in lots of different ways firstly they help you build up your credit score now your credit score is a history of paying off debts and it shows how reliable you are to lenders and it can also affect what you can borrow in the future so if you’ve got a good credit score you’re more likely to be approved for loans mortgages overdrafts those kind of credit products and
offered better rates and bizar using a credit card demonstrates that you are able to responsibly use credit boosting your score and using it regularly and paying it off will help you do this now you don’t necessarily need a specialist credit card to build your credit and you might be eligible for some cards that offer extra features however there are also some credit Builder cards that could be a good place to start if you don’t have much of a credit history be warn though they often charge a higher rate of interest than other credit cards and you’ll probably get a lower credit limit though if you’re just using the card on everyday expenses and paying it off completely each month this won’t be an issue another reason people get credit cards is because they allow you to spread the cost of large purchases so you don’t have to pay the full amount owed straight away you can pay it back over several months however that’s only really something you should consider in an emergency as it is an expensive debt
and interest will be added to whatever you borrow so make sure you can afford it in the long run if you do need to spread payments you could consider a 0% balance transfer card which allows you to borrow without paying interest for a set period of time say 12 or 24 months as a general rule you should try and use a credit card for everyday spending that you’ve budgeted for such as at the supermarket or filling up your car with petrol as opposed to buying something you can’t afford now and you don’t have
a plan to pay back credit cards also offer valuable payment protection section 75 of the consumer credit act holds your credit card provider and the retailer jointly responsible if something goes wrong with a purchase so this could be if it doesn’t show up or it does show up but it’s terrible quality the item needs to cost between £100 and £30,000 but little trick here you could just put one pound on your credit card to be completely covered by this protection and lastly you can also earn rewards and bonuses with some types of
credit card so you could get cash back you could get a bonus you could get avos and other points every time you spend I’m not going to go into too much detail about this for this video but Andy’s done a brilliant video called the best cash back and rewards cards which I’d really recommend you have a look at if you are considering a rewards credit card it shouldn’t be the main reason that you get one and don’t be tempted to spend more on the card to earn bigger rewards you are still taking on debt and
you’re very unlikely to break even now for this next bit I want to go over the basics of credit cards as they can be confusing and there are some important things to know especially if you’ve never had one before so firstly do not go there if you struggle with debt already credit cards are useful but they’re not essential and they could make things more difficult if you’re already struggling secondly pay back as much as you can each month you’ll get sent your balance which is how much you spent and the
minimum repayment which is how much you have to pay each month in a statement with the date it needs to be paid but you can pay more clearing your balance in full each month is the cheapest way to manage your credit card as you won’t be charged interest you can set up a direct debit if it’s easier to keep on top of these things if it’s not possible to clear the balance every month try to pay back as much as you can afford and failing that make sure you pay at least the minimum if you don’t you’ll be
charged a late fee and you’ll get a negative mark on your credit score if you are struggling do talk to your provider and see if you can sort out an alternative repayment plan you can also speak to Citizens advice and debt Charities such as National Deb line another thing to consider is the interest so when you look at credit cards you’ll see APR quite a lot and this stands for annual percentage rate it’s essentially how much you will be charged on your balance if you don’t clear it comp completely each month now
it’s not a good idea to get a credit card if you think that you will be going to pay the interest but keep an eye on it in case you do end up getting charged however it’s not as straightforward as picking a card with the lowest rate as lenders only need to give 51% of successful applicants the one that’s advertised so 49% could pay more you’ll also be given a credit limit so the credit limit is the maximum that you can borrow on the credit card and it’s based on things like income and credit history
if you go over the credit limit you could be charged a penalty fee and it could damage your credit score so try to only use around 30% of the credit that’s available to you this is known as credit utilization and sticking to around 30% shows lenders that you’re in control and it’s much better for your credit score however don’t spend what you can’t afford just to get to this level you can withdraw cash on your credit card but don’t it’s expensive and it’s not good for your credit score lenders May view
it as a sign that you can’t manage your money because you may be withdrawing cash to pay for Essentials which sounds a bit presumptuous but believe me it’s just best not to even go there another thing that people ask is about whether you can play bills with a credit card so you can’t always do this direct debits have to be done on a debit card which is how many of us pay our bills so if you do pay your bills this way then it has to be with a debit card some providers may allow you to pay bills on a credit
card but you might have to pay a fee but have a look at other regular payments such as your Spotify your Netflix because there may be a credit card option there do be careful though as you are racking up there and you should only do it if you can afford to clear the balance every month it could take months to improve your credit score so don’t expect results straight away the longer you use your credit card and pay off the balance the better however you could expect to see some improvements within about three months your best bet is to
sign up for credit reference agencies such as exper Ian or clear score which are both free to keep an eye on your score and to see how it improves moving on to eligibility you may be wondering who can actually get a credit card so this depends on a number of things you usually have to be at least 18 in some cases 21 and a resident in the UK you then have to give your personal information so for example your address in your income and the provider will also check your credit history and how you’ve managed your finances in the past
it will then make a decision on these things not not having a history doesn’t mean you’ll be turned down necessarily but you might be offered a smaller credit limit but to check your best bet is to use an eligibility calculator before you apply so this will run a soft credit check so it won’t show up on your credit history and will give you a sense of what the credit card provider will see and what cards you could get and whether you’re likely to be accepted so you could try and calculator on a
comparison site so money supermarket has one go compare has one and money saving expert also has one on his website lots of people may be wondering what to do if you’re rejected for a credit card the first thing I will say is Don’t Panic it doesn’t mean that you’re never going to get one there could be lots of reasons why you’ve been rejected but it’s most likely your credit history your financial history such as your income employment or specific criteria of the card provider or even issues with the
application form so your best bet is to maybe have a conversation with the provider and see if it can shed any light once you’ve done that don’t rush into applying for another one because it will hurt your credit score if you make too many applications into shter time so I would suggest you wait at least three months before you give it another go and that is it hopefully I have covered most of your initial questions about credit cards if you’ve never had one before I appreciate you might want to know more
so do get in touch via the Be Clever with your cash Facebook group or comment below and we will try and help thanks for watching check out the videos here for more ways to make the most of your money.