4 things you need to know about credit cards – cosmopolitan.com
When it comes to credit cards, we have a lot of questions. How do you actually apply for one? Are they a useful tool, or a recipe for debt? And just what exactly *is* a balance transfer?
Meet Cheri, a secondary school teacher from East Yorkshire. Like us, Cheri has been confused about credit, and ended up with debt she now has to pay off, while she saved for a deposit. Cheri is currently living in the Cosmopolitan Home Made house, in partnership with NatWest, to learn how to do money better and get her debt cleared.
To help get her spending back on track, Cheri put four of her most burning questions on how to use credit cards safely and responsibly to personal finance expert Kia Commodore.
Get ready to get clued-up on credit!
1. “Is a credit card actually useful?”
“A credit card could be a helpful tool to start building your credit rating, which could help you get approved for a mortgage or loan. Using your credit card to make small, frequent purchases and paying off your balance in full each month could help to boost your score and can show lenders that you’re a reliable person to lend money to,” explains Kia.
“A credit card can also be useful if you’re making a larger purchase and want added protection. Any purchases between £100 and £30,000 are covered under Section 75 of the Consumer Credit Act. This means that if an item you’ve purchased using your credit card is faulty, or a holiday is cancelled, you could turn to your credit card provider for support in getting a refund or replacement.
“However, a credit card is a big commitment and you should only think about getting one if you know that you can be disciplined with your spending.”
2. “What are the dangers of credit cards? How can they be avoided?”
“The biggest danger when using a credit card is the potential of falling into debt. You may find yourself spending amounts that you’re unable to pay back, which could lead to you taking out more debt to pay for the existing money you owe,” warns Kia.
“To avoid this, only spend on a credit card what you know you can afford to repay. Have a repayment plan in place before you make any large purchases so you don’t miss payments and get hit with late fees.”
“You should also be cautious about unexpected fees or charges, like cash advance fees. These fees can be charged if you take money out of a cash machine, gamble (which includes buying your lottery ticket online!), topping up your mobile and buying foreign currency.”
3. “How could I get the right deal for me when I apply for a credit card?”
“When applying for a credit card, there are three things to look out for,” says Kia.
- Balance Transfer Fee: If you’re looking to transfer your existing balance from one credit card to another, you want to look for the lowest balance transfer fee. A balance transfer fee is the fee that credit card providers charge you for the privilege of moving your balance over to them.
- Interest Rate: Arguably the most important factor to look at on your credit card search, an interest rate is the percentage you’ll be charged each month if you don’t pay off your full balance. Look for the lowest interest rate that you can find; many banks will even offer 0% interest for a set period of time.
- Rewards: It’s certainly worthwhile researching any extra perks that might come with your card. Some credit cards offer cashback on certain purchases as well as discounts and loyalty points for spending.
“You can also use an eligibility checker before you apply for a credit card to find out if you’re likely to be accepted. This could protect your credit rating.”
4. “What’s the best way to use a credit card?”
“This really depends on you and your lifestyle. You may want to regularly use your credit card for your weekly food shop and pay it off in full at the end of the month, or you might use it for a big purchase, paying it off in instalments,” advises Kia.
“However you choose to use your credit card, the most important thing is that you’re making regular, on-time repayments and not spending beyond your means.”
There you have it: pretty much all you need to know about getting a credit card!
If you feel like a credit card could help you make the most of your money or manage your debt, research the right option for you with a NatWest Financial Health Check. Find out more with NatWest
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