Should you get a credit card? The answer isn’t always clear cut for everybody. They offer lots of benefits, but if you’re not careful, they can also get you into a lot of financial trouble.
Whether or not you should get a credit card will depend on your own circumstances and needs. Take a look at the following six questions to help you decide whether a credit card could work for you.
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1. Do you need to build up your credit score?
One of the best reasons to get a credit card is to help build your credit score. Credit cards create a track record of how you handle money. Using a credit card responsibly shows that you’re good at repaying your debts on time and not missing payments. This can be helpful when you apply for a loan or a mortgage.
Of course, not making your payments on time can have the opposite effect and really hurt your credit score.
2. Can you afford to pay back what you spend?
Remember that credit score you’re trying to build up? If you fail to make your monthly payments on time, a card can actually hurt your credit score.
Plus, letting debt grow will lead to high-interest payments. This can quickly spiral into serious debt if you’re not careful.
3. Do you shop online a lot?
Credit cards offer protection for most purchases with a value of over £100. Depending on the card, this protection might extend up to £30,000. This is something you don’t get when you pay with cash, and it’s something debit cards don’t always offer.
According to the Money Advice Service, this protection encompasses many areas, including when you make a deposit for your purchase (even if you haven’t paid the whole amount yet). Credit card protection also covers holidays or flights you book if they are cancelled, or the airline or travel company goes bust.
Could you be rewarded for your everyday spending?
Rewards credit cards include schemes that reward you simply for using your credit card. When you spend money on a rewards card you could earn loyalty points, in-store vouchers airmiles, and more. MyWalletHero makes it easy for you to find a card that matches your spending habits so you can get the most value from your rewards.
4. Will you take advantage of the rewards?
Rewards credit cards are a great way to get freebies for purchases you would be making anyway. Rewards credit cards offer rewards in the form of points for each pound you spend. Some offer bonus points for shopping with specific retailers.
These points could translate to free hotel stays, cashback or reward points, depending on which card you choose.
5. Are you more likely to need cash?
Lots of things can be paid only in cash or with transfers. Although it’s possible to make a cash withdrawal from your credit card, it will cost you dearly to do so.
Most cards charge you a fee for a cash advance, plus interest that starts accruing as soon as you take the money from the ATM. You will pay these fees even if you make your regular monthly payment on time.
In an emergency, having the convenience of getting cash quickly can be wonderful. But if withdrawing cash is a regular practice for you, the costs of doing so with a credit card will add up and could hurt you in the long run.
6. Do you need help budgeting?
Creating a budget is an essential step to paying off debt, saving money and getting ahead financially. But keeping track of your cash expenses can be difficult. £1 spent here and £5 there can add up quickly.
Using a credit card can be a good way to track where your money is going. If you commit to not using cash for a while and instead pay for things with your credit card, your monthly statement will show you exactly where you’re overspending and where you need to cut back.
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