Is it just us or are credit cards highly glamourised? All for the wrong reasons of course.
We see the use of credit cards in movies all the time…the main character whips out their gold American Express card, swipes it, signs their name (so retro, we know), then struts off with a Louis Vuitton bag and half a dozen designer shopping bags.
We know it looks glamorous, but the reality is, having a credit card really isn’t.
Taking out a credit card has many advantages. For example, the fact you are utilising credit and most importantly, successfully paying it back. It can also offer a sense of security through credit card protection rights. However, there a few things that you need to know when you have a credit card. This article is all about those mistakes you could be making with your credit card but really can’t afford to be getting wrong, and how to put the wrongs right.
Only making minimum payments
When you spend on a credit card, there will be an agreed amount that you have to pay back each month. This will appear at the top of each monthly credit card statement. We are totally for paying way above this minimum payment (if you can). In fact, it’s in your interest (dodgy credit joke alert...because credit cards have interest - get it?) to pay your card above and beyond the minimum payment.
It saves you money. When you pay more, the balance and the associated interest payments go down. The sooner you pay it off (and yes, that can mean paying £30 instead of your minimum monthly payment of £25), the more money you will save. Paying above and beyond the minimum payments also means you will be using less of the money offered by your credit provider, so your credit utilisation ratio i.e. the amount of credit you are actually uses decreases, which will positively impact your credit score.
Missing a payment
Missing a credit card payment is no joke. It’s not like you will have the debt collectors at your door the first time you miss a payment, but missing payments can have serious consequences on your credit file. Think of it like a ticking bomb, each day you will leave a payment overdue, the more damaging consequences it has on your credit score, until one day it explodes.
When a payment is over 30 days late, that's a big cross marked next to your name and that can stay on there for up to 7 years. As well as the lasting impact on your credit file, missing or making a late payment can result in being charged in additional fees (who has time for those??) To avoid high late fees and a poor track record, pay your credit card off on time.
If you are ever thinking, ‘I’ll miss this month and just pay it next month’, we hope these two reasons will make you think again.
Not checking your statement regularly for irregularities
Whether it’s you Credit Card statement, Debit Card statement, or Starbucks points statement - it’s super important to double check that your money is not victim to fraud or any unauthorised transaction not made by you. Studies show that Credit Card fraud was ranked the highest type of identify fraud in 2018, accounting for 35.4% of all identity theft fraud. In a world where online shopping is the thing to do, cards without a chip were in much higher demand. Instead of those old school con tricks, fraudsters are now tapping into the “Card-not-present” trend to hijack your money. If you suspect fraud on any of your accounts (including your Starbucks account) - contact the provider straight away and report it.
Not knowing your APR fees from your applicable fees
We get it. Banks and credit providers love to make it complicated and have all these different words with different meanings. So to clear up any complexities, here is our dictionary for all things credit card:
Annual fee: The yearly fee charged for holding a card
Purchase APR: The yearly interest rate purchases are charged when you carry a balance month-to-month. Simply divide by 12 to get the monthly interest rate
Balance transfer APR: The same as the Purchase APR but this specifically applies to balance transfers
Penalty APR: Card issuers may penalise you with an interest rate that's higher than your regular APR if you miss payments or pay late
Late payment fee: If you pay late, you'll incur a fee for doing so. This can increase if you continue to miss payments
Foreign transaction fee: Purchases made outside your home county will also occur a fee
Balance-transfer fee: When you transfer debt to one source, you'll often incur a fee
Maxing out your Credit Utilisation
We’ve thrown this phrase around before, and will do again. And that phrase is Credit Utilisation. This is the amount of credit you're currently using divided by the total amount of credit you have available. So, for example if you have a credit card limit of £4000 but only spend £2000 of that, your credit utilisation ratio will be 50%. Keep the number 30 in your head. The less you use your credit card, the better! If you are using all the credit available to you, lenders may believe you’re struggling financially and this can have a negative impact on the credit you are allowed in the future. The key takeaway here is, just because you have a credit card doesn’t mean you have to use it. In fact, it's in your interest if you don't...(sorry we had to)
Not understanding the effects of canceling a card
This one can be a bit of a myth. But let’s put it straight, closing a credit card can hurt your credit. Firstly, it can impact your credit utilisation (that term is back again). Closing a card will most likely see the credit utilisation rate increase and as we said above, this isn’t the best for your positioning with credit providers. The timing of your accounts also plays a part in determining your credit score. The longer you have good accounts, the better for your score. Closing an account that is healthy (i.e. no massive outstanding amounts and is used sensibly) lowers the average age of accounts on your credit report, negatively impacting your score.
Paying your bill manually
We know we are perfect, and we are sure many of you queens are also perfect, but if you’re relying on your memory to make your monthly credit payment on a certain day, you are bound to forget it. The solution is automation, by automating you are able to automatically send a sum of your money to your credit repayments. This will allow you to focus your energy on other things, and reduce the chances of occurring of late penalties. To avoid potential late fees and a potential ding to your credit score, setup your account on auto-pay - it takes 2 minutes.
Not knowing your card’s benefits
The benefits of a Credit Card doesn’t end at just borrowing money. Some of the best Credit Cards are packed with monetary and non-monetary perks. You may get discounted insurance coverage, or free a Spotify account, or if you are really lucky air miles or access to an airport lounge (perhaps the slightly more glamorous side to it). It’s always worth it looking at the full benefits of the credit card provider if you are in the early stages of taking one out. There are a few ways which you can find out the perks offered to you, because let’s be honest credit card companies don't openly tell you have all these amazing benefits. To find out what perks and benefits you have... check your credit card providers website, call their customer service team, read the terms and conditions fine print or give it a quick google search.