A credit card mainly helps to fulfil four purposes.
- Manage your cash flow
- Build your credit rating
- Earn rewards points and cashback
- Safety from unauthorised purchases
That's why it becomes crucial to make the correct use of your credit card so you don't get into debt and hurt your credit rating. To make the best use of your credit card, you must know the complete truth about what's right and what's wrong. We have ruled out some common credit card myths here to help you understand your credit card better.
Getting a credit card can put you in debt
You have control over what you spend and how you manage your repayments. If you repay your full statement balance each month, you won't get into debt or pay any interest. When you decide to take a credit card, set clear rules to avoid spending more than you're comfortable with. You can also look at starting with a smaller credit limit, so there's less chance of running into problems.
Having more credit cards can improve your credit rating
Your credit rating is determined by the different types of credit you have which includes loans, mortgages and credit cards. Your credit history including recent credit applications and your current debt also count towards your credit rating.
Some credit cards have acceptance guaranteed
Rebuilding a credit history always takes time and effort - and as with anything that claims to be the quick and easy answer to all your problems, it's always a good idea to check the finer details closely.
You may have seen offers or advertisements promising "guaranteed acceptance" on a credit card. The details vary from case to case, but they usually say that you're guaranteed to be accepted for various popular credit card providers without first running an eligibility check i.e. No matter your credit history, income, employment status, or anything else which a lender would usually check. They might also say that their customers don't go through a credit check at all.
For some people, this sounds too good to be true – and of course it is. No matter who the lender is, anybody who applies for a credit card goes through some kind of credit check. Aside from the regulatory requirement to check creditworthiness before lending, a lender who gave away credit to absolutely anyone who applied (including fraudsters, for example) wouldn't stay in business for long.
If you read the small print on these kinds of deals, you'll usually find that they're either for prepaid cards, or they require customers to make a security deposit up-front to be accepted.
This, however, does not apply to eligibility checkers, which can tell you with a great amount of certainty, how likely you are to be accepted – it is sensible to use these eligibility checkers where possible to avoid negative marks on your credit file.
Prepaid cards are a good alternative to credit cards
Prepaid cards aren't really credit cards at all – although they're a plastic card with the Mastercard or VISA logo on them, you have to load them up with your own money before you can use them. They don't report to credit agencies because no credit lending is taking place.
Some prepaid cards do come with loan advance schemes, which let them function in a similar way to credit cards. Used this way, they can be a way to help you rebuild your credit rating. However, if you want to use this facility you will have to go through a credit check first, and if your credit history is poor, you may be rejected. Some prepaid cards also come with additional costs, such as withdrawal charges or monthly fees.
Security deposit cards are as good as a credit card
Also known as 'secured cards', security deposit cards don't require a credit check because the risk is offset by your deposit, which is often as much as the credit limit it’ll allow. For instance, if you want a credit limit of £2,000, you might need to put down a deposit of £2,000 first.
Many secured cards may come with fees attached, and the rate of interest is usually high as well.
Guaranteed credit cards help your credit score
If you're looking for a guaranteed credit card, you're most likely not to be in the best financial situation – and these sorts of deals aren't likely to help. You might have been turned down by several lenders already, or you know your bad credit history will stop you from getting access to credit.
If this sounds familiar to you, Vanquis provides credit cards that might be a better way forward. We don't guarantee acceptance (and we wouldn't want to) unless you grant us permission to carry out a ‘Soft Credit Search’ on your file by completing a short form using Express Check. We will always consider applications from people who've experienced financial difficulty – even if they've been declared insolvent in the past.
Our "bad credit" and "credit builder" credit cards are specifically designed to help people with bad credit rebuild their scores by borrowing and repaying small amounts at a time, at a rate of interest they can afford. Over time, this demonstrates to lenders that they can manage credit responsibly, until they are able to access more competitive forms of credit again.
Think one of our cards could help you? Find out more here.
The information displayed on these pages does not constitute financial advice. Always do your own research to make sure it is right for your specific circumstances and seek independent advice. We do not accept liability if you rely on any of the information displayed on these pages.