FOOL SCHOOL
How To Get The Best From Your Credit Card

July 29, 2005

Make no mistake: credit cards can be treacherous if you don't know how to use them properly! Sadly, many cardholders rely on their plastic to help them to "keep up with the Joneses" and provide them with a lifestyle that is actually beyond their means.

Thanks to their high interest rates (up to 25% a year!), credit cards are a very expensive way to borrow money over anything other than a very short period. If you find yourself with a stubborn card balance that keeps on growing, you may need to spend some time visiting our Get Out of Debt centre. Alternatively, a balance transfer to a 0% credit card can provide you with an interest-free breather of up to a year.

Pay Them Off Each Month

The best way to use for a credit card is to think of it as a convenient tool to help with cash flow and budgeting. By using your card, you can defer payment for goods and services for up to 59 days, without paying any interest. To do this, you must pay off your entire balance each and every month; otherwise interest will start clocking up at an alarming rate.

Even missing the odd month here and there can be expensive, because most cards charge interest from the original transaction dates until your entire balance including accrued interest - has been cleared. What's more, paying only the minimum monthly repayment each month can turn a balance of, say, just £2,000 into a debt that lasts forty years or longer. Hence, each month, try to pay off as much of your balance as you can. Otherwise, left untouched, your debt will get bigger and nastier each month!

Review Your Statements

This falls under the 'dull but worthy' heading, although, thanks to online banking, it's much easier to do these days. Mistakes do happen, and card fraud is booming, so check each monthly statement for billing mistakes and bogus transactions. If something doesn't look right or is downright fishy, contact your credit-card issuer immediately for help with resolving the problem.

Also make sure you keep a close eye on your card's interest rate, as they can increase with hardly any warning. What may have started out as a Best Buy may turn into a right horror over time! Banks know that few of us can be bothered to switch, so they often lure new customers with attractive headline rates and then slowly worsen them in due course.

It's A Credit Limit, Not A Credit Target!

One of the biggest mistakes that you can make is to think that your credit limit equal 'free money'. It doesn't! In fact, hitting or exceeding your credit limit suggests that you have a problem with spending and budgeting. And if you do go over your limit, expect to be hit with a fine of, typically, £25 for breaching the terms and conditions of your account.

Another warning sign is when your card issuer keeps upping your credit limit without being asked. This happens to sensible and careless cardholders alike. However, if you see a £1,000 increase in your credit limit as another £1,000 in your pocket, then you may have a problem with your relationship with money. Another thing to be wary of is 'consolidating' (rolling up) your debts into a cheap loan and then celebrating with a spending spree on your plastic. If you find yourself regularly 'maxxing out' your plastic, you need to learn to live within your means!

Multiple Credit Cards

With more credit cards than people here in the UK, most adults have more than one card. In fact, it's almost as though they quietly breed inside your wallet or purse when you aren't looking! Also, you probably receive a tide of junk mail offering you yet more plastic.

The more cards that you have, the harder it becomes to track your spending and, more importantly, it becomes a full-time job to keep tabs on how much you owe. It also makes it more likely that you'll forget to pay all of your monthly bills on time. You'd be better of finding one really competitive credit card that suits your personal requirements and offers a decent range of benefits plus a low rate of interest.

Credit Scoring

Be wary of hopping from the latest Best Buy credit card to the next, because you could be damaging your ability to borrow in the future. Every application for credit accepted or rejected - is noted in your credit record. Make too many applications, or apply for several cards in a limited timescale, and you could be branded a high-risk customer.

Learn From The Fool Community

Our Credit Card discussion board is an excellent place to learn from other experienced cardholders and keep track of the latest developments and hot deals.

> Find your perfect plastic in our Credit Card centre!