Ruislip & Eastcote & Northwood Gazette
Pick a card... but not any card
Credit cards differ greatly, so get one that fits your specific needs, says TRICIA PHILLIPS
CREDIT cards can be a brilliant way to help manage finances – but choose the wrong one and plastic becomes less fantastic.
Get it right though and you’ll pay off debt quicker and cheaper, be able to spread the cost of bigger ticket items without paying any interest and build up a good credit score – and that will mean you can bag the best deals on lots of financial products.
You first need to decide why you want a credit card, so you can choose one that is right for that purpose.
There is no one card that suits all needs, some people may need to consider having more than one card, others could end up in a muddle by spending and building up new debt on a card they applied for to try and pay off existing debt.
James Jones, head of consumer affairs at credit reference firm Experian, says: “Using credit cards can be a real boon for your credit score, if you know how to play your cards right.
“Lots of people aren’t aware that they may not always get the advertised interest rate when they apply for a card or loan. While lenders must give the headline rate to at least 51% of successful applicants, the remaining 49% may be offered a less attractive deal.
“Your credit score helps lenders decide what to offer you, with the best deals usually being reserved for the top scorers.”
Here we take you through the process of applying for a card, and the best way to manage plastic to ensure you achieve the highest credit score while paying the least interest.
APPLY FOR THE RIGHT CARD
DECIDE what you want the card for
■ To pay off debt:
A 0% balance transfer card is the best option.
■ To spread the cost of a big purchase:
A 0% purchase card is best.
■ An everyday card to help balance your budget throughout the month:
A card offering loyalty rewards (only ones you will use) if you will pay off the balance in full each month.
If you think you may have the odd month where you might not clear your spending in full, look for a card with a long-term low APR.
■ To use when travelling abroad:
Check the fees and charges for non-sterling transactions and ATM withdrawal charges. Cards such as Barclaycard’s Platinum Travel and Halifax Clarity don’t charge these fees, so you won’t end up paying over the odds.
CHECK YOUR CREDIT SCORE
IF it’s not excellent, do a soft search to find out which cards you will be eligible for, before applying formally. Each formal application leaves a trace on your credit report. Being rejected by one provider will put others off giving you credit. Experian.co.uk has a comparison service which lets you know which products you are most likely to be accepted for. Totallymoney.com and Moneysupermarket.com have similar tools. Card firms including Barclaycard, MBNA and Asda Money offer soft searches before you apply for their products.
If your credit score is poor or very poor, try and take steps to improve it before you apply for any cards. You can improve your score by making sure you are on the electoral roll, make repayments on all your bills on time each month, and try not to live in a constant overdraft.
HOW CREDIT CARD USE AFFECTS CREDIT SCORES
■ Be a reliable customer – make at least the minimum monthly payment on time. For example, if you missed your most recent payment missed, that costs you -130 points.
Account defaulted and transferred to collections? That’s -350 points.
■ Try to keep your balances low
A balance below £50 means +60 points. A balance over £15,000 results in -50 points
■ Be trustworthy
Being granted a generous credit limit by an existing provider underlines your creditworthiness to other lenders, so having a credit card limit of £5,000 or more equals +20 pts, while having a credit card limit of £250 or less results in -40 pts
■ Try to use your cards sparingly
Card balance below 30% of your credit limit +90 pts. Card balance over 90% of your credit limit -50 pts
■ Try to not look like you’re in persistent credit card debt and
You can improve your score by making sure you are on the electoral roll, make repayments on all your bills on time each month, and try not to live in a constant overdraft.
can only afford to meet the bare minimum monthly payments This has no direct score impact but making just the minimum monthly payment is marked on your credit report with a warning flag and can worry a new lender, unless the account is a promotion (ie a 0% introductory deal).
■ Shop around but try to let some credit mature – lenders value stability and loyalty
Having a credit card for 5+ years means +20 points. Having a new card account opened in the last six months, -40 points
For example, according to Experian, a five-year-old credit card with a high limit, low balance and perfect payment record can boost your credit score by around 200 points, which could supercharge your score from Fair to Excellent on the Experian Credit Score scale.