At a basic level, a credit card is a way of borrowing to make purchases. It allows you to then pay money back for these purchases in the future. Another helpful feature is how a credit card can help to build your credit.
Once you know the benefits of a credit card, as well as things to consider, you’re in a position to work out if one is right for you. You can also decide what type of card to apply for.
We’ve put together this guide on credit card benefits to help you make the right decision for your financial wellbeing.
Advantages of a credit card
There are a few different advantages to having a credit card but the most important ones to you will depend on your own situation.
We’ve listed a few here to show how they could improve your financial situation:
Start to build a credit history
You can use a credit card to start to build your credit history, provided you manage it well and pay our balance in full and on time. Over time this will show lenders you can manage your credit agreements.
Use of credit card for important purchases
If you use your credit card to pay for goods or services costing between £100 and £30,000 for a single item, you may have a section 75 claim in the event that goods or services are unsatisfactory or there has been a misrepresentation. (This is known as a potential claim under section 75 of the Consumer Credit Act 1974).
From cashback to air miles, many credit cards come with rewards included. These can seem like a great idea but you should always make sure that the cost of the card doesn’t outweigh any rewards you receive.
Transferring a balance from other cards
If you already have a credit card with a balance on it, you can use a balance transfer credit card to move this balance without paying interest on it. Many balance transfer cards come with 0% interest for a specific period of time, allowing you to manage your debt. Read more about balance transfer credit cards with our guide page.
Money for emergencies
Having a credit card ready can help to reduce the cost of any emergencies such as paying for urgent car repairs or household costs like a new boiler.
How to choose a credit card
There are quite a few types of credit card you can apply for. Which one you choose depends on what you need it for.
The advantages of a credit card are best enjoyed when you know why you need them. Credit card usage varies from person to person, but we have put together some primary uses of credit cards for you.
Ways of borrowing: Credit cards offer a way of borrowing money for your everyday purchases. It increases your purchasing power and provides you with the required funds when needed. You can also use your credit card when travelling or on a holiday.
Improve credit score: If you have a bad credit score or no credit history a credit card could help you improve your credit. By using your card responsibly and making all your payments on time you can build your credit score over time.
Consolidate your debt: If you are looking to move your debt to save money using a balance transfer credit card could be your best option. 0% balance transfer credit cards allow you to shift your balance from the expensive card and give you some time to pay off the debt interest-free.
You can also look at money transfer cards which have the option to transfer money straight into your bank account. You might be interested in rebuilding your credit using a credit card. Using a card in a responsible way is a good way to show you manage your finances in a smart way. Or it could be a large purchase which you need to finance, like a holiday or home improvements. A card will let you pay upfront and then spread the repayments over a period of time.
Once you have an idea of the type of card, have a think about your credit limit. You should ensure you have a credit limit that allows you enough available balance but is also manageable. If you need a card to rebuild your credit, you may find you can only get a card with a lower credit limit.
Next consider interest and the effect this has on repayments. If you’re not able to fully pay off your credit card each month, you might find that you need to pay more in interest which means your repayments go up. If you end up with a card that has a higher APR, you should ensure you can pay off any credit balance to keep your repayments at a manageable level and at least be able to meet your minimum repayments each month.
Ways to use a credit card
Once you have your card, you should also consider how you plan to use it.
Make a decision on how you plan to use your card
For example, do you need to transfer a balance from another card? Are you looking to build or rebuild your credit? Or are you planning a large purchase that you need to pay for?
Find out if your card provider has an app
Most card providers (including Vanquis) have a mobile app which you can use to manage your credit card. This will allow you to make payments, keep track of your transactions and manage things like your personal details and security.
Set up a Direct Debit
Once you have your card and your account is set up, it’s a good idea to set up a Direct Debit to make regular payments. This means you won’t need to remember to pay your credit card and so you’re much less likely to miss a payment.
Work out a payment amount
If you can, it’s better to pay more than the minimum amount off your credit card balance each month. Better still is to pay off the full amount but you should always try to pay more than the minimum to avoid paying interest.
Spend within your means
It’s a good rule to make sure you never pay for anything on a credit card unless you know how you can pay it back. If you have a large available balance there can be a temptation to use your card for large purchases but remember if you can’t pay this money back you will start being charged interest on the amount.