New to Credit Cards? Some Tips for Beginners

Credit is an essential tool for modern living, and those without access to credit may find themselves unable to access many services. Using a credit card responsibly is a great way to demonstrate to financial institutions that you’re a suitable customer for their services.

If you’re new to credit cards, or just returning to them, it’s well worth reading this guide to their sensible and effective use.

Be responsible

Without the proper attitude, credit cards can lead to a spiral of debt that can rapidly spin out of control and lead to long-term financial damage. When used correctly, credit cards are an excellent tool and can be used to show a sensible and responsible use of credit. This in turn will improve your credit score and deliver freedom to embark on loans, mortgages and a great many day-to-day activities such as hire purchase agreements and mobile phone contracts.

Fees and penalties

Credit cards are in essence a loan from a financial institution like a bank or a building society. There will be an agreed credit limit, an interest rate that is applied to the balance on the card and a minimum amount to repay each month. It’s important to note that there are fees and penalties if repayments are not made on time. Before you sign on the dotted line compare credit cards to ensure you’re getting a favourable interest rate.

Pay off the balance

The single most important piece of advice is to always try to pay the whole balance of the card each and every month. Doing so will avoid any interest fee’s. Failing to do so will guarantee that the debt will increase, and the effects of compound interest can quickly lead to your debt spiraling out of control. Most institutions will allow for the automatic payment of the balance each month by direct debit or standing order. Setting up such a payment eliminates costly errors in busy months when there to many things to think about.

It’s not free money

This method will also prevent looking at your credit card as a source of spending money. Knowing that the full balance will be re-paid at the end of the month should curtail spending beyond what you know is affordable. A sound rule of financial planning is "If you can’t afford it now, you probably can’t afford it in a month". Rather, it is better to budget and save for expensive items, making such purchases when you can truly afford them.

Emergency funds

Likewise, never use your credit card for everyday purchases. These should be made using the cash available in your current account, or from your monthly budgeting. It’s far to easy to forget purchases made with you credit card, only to have to face a sizeable repayment at the end of the month. The exception to this rule is for electronics or similar costly purchase. In these instances your card may offer built in insurance against theft or damage that can turn out to be invaluable.

Speak to your lender

Finally, if your credit card gets the better of you and the balance starts to grow, always speak to the lender before defaulting on payments. Doing so may help avoid late fees and together you can decide on a plan to get you back on track.

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