Should I get a credit card?

What do you want to use it for?

If you’re not sure what you’d want to use a credit card for, consider some of these options:

Making a purchase

Using your credit card to make a purchase means you can buy something now and pay for it later.

With most credit cards you’ll have up to 56 days before you need to pay interest on a purchase. With a 0% purchase credit card you can avoid paying interest for several months or longer.

Transferring a balance

If you transfer an existing credit card balance to a credit card with a 0% introductory deal on balance transfers, you’ll save money on interest payments.

Balance transfer cards usually charge a balance transfer fee – this is expressed as a percentage of the amount transferred. You’ll need to factor this fee into your calculations when working out how much you can save.

Paying off other debts

A money transfer credit card allows you to transfer money into your bank account – the idea is you use the cash to pay off other debts such as loans and overdrafts.

If the money transfer card has a lower interest rate than your other debts, you’ll save money on interest payments (although fees also need to be factored in). You can get money transfer credit cards with introductory deals at 0% interest.

Improving your credit score

Regularly borrowing a small amount of money on your credit card and paying it off in full each month can improve your credit score.

Earning rewards

Some credit cards give you rewards such as points, airmiles or cashback on spending. The best credit cards for rewards can result in making a profit whenever you spend.

Extra protection

Section 75 of the Consumer Credit Act gives you extra protection if you buy something using a credit card that cost more than £100. Under the act, the credit card provider shares responsibility for any breach of contract or misrepresentation by a retailer or trader on goods that cost between £100 and £30,000.

Important things to consider

Circumstances

Always consider your personal circumstances and make sure you will be able to repay the money you spend on your credit card.

Although credit cards offer flexible repayments, you will need to pay a minimum amount each month.

If your circumstances change and you struggle to meet your payments, get in touch with the card issuer at once.

Cost of borrowing

To help borrowers quickly compare the cost of borrowing on different credit cards, each publishes an APR (annual percentage rate).

Some credit cards have different APRs for purchases, balance transfers and cash withdrawals.

You should also check if a card charges extra fees for overseas use and/or ATM withdrawals.

Affordability

It’s important to be able to afford to repay any money you borrow on a credit card. If you don’t pay off the card each month, interest charges can quickly rack up and you’ll owe more money.

If you have existing debts you should carefully consider whether borrowing more money on a credit card is right for you; it may be worth exploring other borrowing options or seeking budgeting or debt advice such as from the Money and Pensions Service.

Alternative options

Credit cards are a popular way to borrow money and plan for emergencies – but there are alternative options.

What are the benefits of having a credit card?

The benefits of having a credit card include allowing you to:

• Borrow money without paying interest
• Delay paying for purchases
• Pay off existing debts at a cheaper interest rate
• Improve your credit score
• Be prepared for emergencies
• Benefit from extra protection on purchases
• Earn cashback and rewards
• Manage your budget
• Spend overseas easily

What are the risks of having a credit card?

The risks of having a credit card are:

• You might borrow money you can’t afford to repay
• Interest charges can mount up quickly
• Missed payments will have a negative impact on your credit score
• You’ll be charged late fees if you miss payments
• Cash withdrawals can be expensive

Considerations before applying for a credit card

Eligibility

The main eligibility criteria for a credit card are that you must be aged 18 or over and have the right to live/work in the UK.

Other eligibility criteria vary between credit card issuers. Most will require you to have a job or other regular income; they will also run affordability checks to ensure you can afford to repay the amount borrowed. Some cards will only be offered to borrowers with a certain income and/or a good credit score.

There are credit cards specifically aimed at people with poor credit – these are called ‘credit building’ credit cards and tend to have low credit limits and high interest rates.

Credit card fees and interest rates

A credit card’s fees and interest rates will be set out in a ‘summary box’ you can view before applying for a card.

Most mainstream credit cards have an interest rate (APR) of about 18% to 20%. Some cards have different interest rates (APRs) for purchases, balance transfers and cash withdrawals.

There might be extra fees for using your card overseas or at the ATM. You’ll be charged additional fees if you go over your credit limit or don’t pay at least the minimum repayment each month.

Understanding credit limits

Your credit limit is the maximum amount of money, in total, you can borrow on your credit card at any one time.

Your credit card provider will set a credit limit when you are approved for a card. Your credit limit will depend on your circumstances such as income, other financial commitments and your credit history.

Your credit card provider may change your credit limit – either up or down – over time.

If you attempt to make a purchase that would take you over your credit limit, the transaction may be declined. If it does go through, you might be charged a fee for exceeding your credit limit. It could also negatively affect your credit rating.

It’s worth noting that even using close to your maximum credit limit can reduce your credit score. This is called your credit utilisation ratio. It’s best to only use up to 25% of your total available credit at any one time. Use more and it will knock your credit score.

Tips for using a credit card responsibly

Learning how to use a credit card responsibly can help you budget and may have a positive effect on your credit score.

Here are 10 tips for using your credit card responsibly:

1. Don’t go over your credit limit (ideally only borrow up to about 70% of your limit)
2. Consider your overall credit utilisation ratio when borrowing money – Using more than 25%will impact your credit score
3. Pay off your balance in full each month where possible
4. If you can’t repay in full each month, make at least the minimum repayment
5. Set up a direct debit with your bank to pay your card each month
6. Understand fees, such as for ATM withdrawals, for using your card abroad and for late payments
7. Check your monthly statement for accuracy and fraudulent transactions
8. Report lost or stolen cards immediately
9. Don’t borrow more than you can afford to repay
10. Only use your card for ‘needs’ not ‘wants’

Credit cards: FAQs

Will applying for a credit card affect my credit score?

Applying for one credit card won’t have a big impact on your credit score. But applying for several cards – and being rejected – will have a negative impact on your credit score.

Credit card issuers will check your credit history with a credit reference agency (CRA) before offering you a credit card.

You can use an eligibility checker before applying for a credit card. This will minimise your chances of rejection and does not affect your credit score.

Is it better to use a debit card instead of a credit card?

Your personal spending habits and ability to manage your borrowing will dictate whether it is better to use a debit card instead of a credit card. Many people use both, for different types of spending.

Debit cards are linked to your current account and are useful for everyday spending. You don’t rack up debt with a debit card unless your current account is in overdraft. Using a debit card and keeping track of your spending can help you budget.

If you use a credit card, you are borrowing money. Credit cards can be useful for spreading the cost of large purchases, benefiting from the extra protection offered by Section 75 of the Consumer Credit Act, and earning rewards and cashback.

What happens if I don’t use my credit card?

If you don’t use your credit card for a long period of time, your provider may decrease your credit limit or close your account due to ‘inactivity’. But it should contact you before doing either of these.

Are credit cards regulated in the UK?

The Financial Conduct Authority (FCA) regulates credit cards in the UK.

Can I have multiple credit cards?

You can have multiple credit cards. Used correctly, holding multiple credit cards for different purposes can help you earn rewards points, take advantage of interest-free offers or spend fee-free overseas.

However, when you apply for a new credit card, the provider will look at how much credit you have available elsewhere and your application may be declined if you have a high amount of available credit.

How can I protect myself against credit card fraud?

There are several steps you can take to protect yourself from credit card fraud:

• Keep your physical credit card in a safe place
• Don’t tell anyone your pin
• Shield the keypad when entering your pin at an ATM
• Never provide credit card information over social media
• Only make payments to websites you trust
• Don’t let other people use your credit card
• Reduce your contactless payment limit
• Use strong passwords for online banking and change them regularly
• Check your statements for fraudulent transactions
• Report lost or stolen cards straight away
• Use your credit card’s smartphone app for instant notifications of transactions

Summary

A credit card offers a revolving line of credit that can be repaid on flexible terms. Credit cards allow you to spread the cost of large purchases and offer extra protection if anything goes wrong. Some credit cards offer cashback or rewards. Used correctly, credit cards can have a positive impact on your credit score.

You should only borrow what you can afford to repay on a credit card. If you repay your balance in full each month, you won’t pay any interest. But if you fail to make payments, interest charges can quickly rack up and missed payments can negatively affect your credit score.