For full functionality on this website it is necessary for a browser that supports JavaScript to be used. Please upgrade to browser that supports JavaScript to use all the features of this website.

Click here to find out more

This website uses cookies. We use cookies to give you the best experience. If you continue using our website, we will assume that you are happy to receive all cookies on this website. Cookie Policy

How to Use a Credit Card Properly

Published: 17 Jan 2018

Credit cards are a common borrowing tool, but if you’ve never had one before the array of choices can be overwhelming. In this week’s post we break down the different types of credit cards available, and explain how they’re suited to different types of spending.

Credit cards are certainly not a ‘one size fits all’ financial service, and the ideal card for one person could cause potential financial difficulties for someone else. Picking the right credit card depends on the nature of your household finances and your spending habits. Understanding the benefits and potential pitfalls that each option can bring is a fundamental step in the right direction when determining the best one for you.

Credit card best practice – the basics

Image for Image
  • Credit cards are best used as tools for gaining rewards on what you’d buy anyway, boosting your credit file, and for lowering the amount of interest and/or charges on other borrowing. Relying on a credit card for day-to-day spending and not being able to pay back the full amount each month can be extremely expensive in the long-term.
  • If the unexpected occurs and you are unable to pay off the full amount, always pay the minimum payment shown on the statement. Failure to do this may result in additional charges, a rise in the interest rate, and the loss of any promotional extras.
  • Compare a number of credit cards before being taken in by a single deal. Credit cards can offer varying rewards – such as cashback, supermarket points or air miles – and it’s preferable to pick the deal which best suits your spending habits and your needs.

‘All-round’ credit cards

All-round credit cards allow you to both spend with them and transfer other debts to them – which is known as a balance transfer. Credit cards like this are common, and the interest rates can be set at anything up to 40% APR, with certain cards offering initial low rates, which will then rise after a set time.

Cards like this are convenient, but if you need both spending and balance transfer options, you may do better with two separate cards which are each tailored to just one of these needs. Cards offering single options are more likely to offer good deals and rewards, so you may find that you save money in the long run. This also has the benefit of essentially doubling the positive effects on your credit file, providing both cards are being paid off properly. 

0% Credit cards

A 0% credit card is one which charges 0% interest for a set period of time when you use it for purchases, or to pay off other debt.

Many people use a specialised 0% balance transfer credit card, where it is used to pay off more expensive debt(s) but cannot be used for spending. This helps the card owner to avoid some or all of the interest payments on the original, higher interest borrowing.

The 0% interest on these cards will only last for a certain number of months and you are usually required to pay a minimum each month in order to keep the 0% interest benefit. For this reason, they are best for spreading the cost of a large purchase, with a solid budget in place to ensure the payments can be kept up. If you are unable to adhere to the terms of the 0% benefit, then you may incur high interest rates and charges, making it a very expensive card indeed.

Travel credit cards

Travel credit cards allow you more flexibility when spending in foreign countries or on overseas websites. Non-travel credit cards tend to add fees when you use them abroad, making them more expensive. When using a travel credit card abroad however, you can enjoy the same excellent exchange rate that your bank uses, making it one of the cheapest ways of spending in a foreign currency.

This benefit will only remain a benefit if the balance is paid in full, of course, as added interest will overtake the amount gained from avoiding foreign currency fees. Cards like this can be useful in the short-term to help pay for holiday expenses in a cheaper, more convenient way, for instance; but only if you’ve already put aside or budgeted for the amount you want to spend.

Credit builder cards

A credit builder card is excellent for first time borrowers looking to boost their credit score. Use of the card over time can give those with no credit history a better standing when looking to borrow in the future. However, the high interest rates mean that cards like this should be repaid on time and in-full each month. Leaving a balance on a credit builder card and only paying the minimum amount can cause the amount owed to become unmanageable.

Some of these cards do offer 0% interest for very short time as a promotional rate, which is something that can be useful as long as the balance can be paid off before the interest rate rises. For those who are hoping to obtain finance and a mortgage in the future and have yet to build a positive credit history, this card can be used as a first step.

Final credit card tips

Credit cards can be very beneficial when used properly, and can cause literally decades of debt payments if not. To make sure you’re always ahead of the game, ensure you budget properly and keep records of your statements and payments. Check your credit card eligibility before making any applications to avoid negative points on your credit file, and always take note of the rewards offered. Making a credit card work for you (rather than the other way around) takes research, organisation and time – keep this in mind when deciding on the right card for you. It may be useful to ask trusted friends or family members what has or has not worked for them, as certain challenges may not be obvious at first glance.