Know your credit card better

Generally speaking, a credit card is used to make purchases with money you don’t actually have. This isn’t necessarily a bad thing – you may be using it as a loan to bridge you to payday, or to spread the cost of something expensive.

What is the APR?

All credit cards will have an APR – Annual Percentage Rate. This is the rate at which you will accrue interest on the card. The lower the APR, the less interest you will accrue. It’s possible (and currently very common) to find a card with a 0% interest rate – this is often only for a set number of months. After this, the rate will go up.

There are several ways to use credit cards:

To spread the cost of a purchase

Let’s say, for example, that you’re looking at buying a new TV for £500 – you don’t currently have that £500 but believe you could save £100 a month until you have it.

Instead, you could purchase the TV for £500 on a 0% Credit Card. You can now pay £100 off per month until the £500 is paid off.

This will work if:

  • The promotional period is longer than the number of months you plan to spend paying the money off.
  • You commit to paying off the card and don’t wait until the last minute to pay the money back.

This will generally only work with a 0% Credit Card, otherwise, you’ll be paying interest on top of the purchase, but if it’s an emergency purchase – like a new car part or a boiler, it’s a viable option.

To build credit

If you use a credit card sensibly (staying within 10% of the limit) and pay in full every month – your credit score will improve.

This is because you are showing responsibility, by not having large debt sitting on the card, as well as that you can afford to pay back the debt every month. You can get specific credit builder cards which have higher interest rates, you generally won’t be rejected for one of these cards unless a credit bureau can’t verify your identity.

Once you’ve increased your credit score, you can apply for a card with a higher limit, and a lower interest rate.

For the rewards

Reward credit cards often have high-interest rates but will give you some kind of reward for spending money – this can be in the form of points and cashback. You often need to spend a lot of money to receive any reward, and you could be worse off if it’s not paid in full at the end of the month.

If you haven’t built up a good credit history first, then you’re unlikely to be accepted for a Rewards Card – the best way to find this out is with an eligibility tool.

There are plenty of comparison sites which can help you find the right card, just make sure that the site only performs a soft search to determine your suitability. The more questions you are asked when searching, the better: this might feel like a lot of work, but you’re more likely to find cards that you’re going to be accepted for.

Your application

Always check your credit score and report before making any applications for financial products, it’s a myth that checking your score harms it. You’ll want to make sure you’re on the electoral roll, and that all accounts in your name are registered to the same address – wait until you see these on your credit report before making any applications, this could take a couple of months.

If you’re rejected, don’t fret, but don’t apply again. An application is considered a hard search, which you don’t want to make too many of. Take a look at your credit report to see if there are any things you can do to increase the score and try again in a couple of months.

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