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Credit card management: how to get it right

Once you know how a UK credit card works, and when there are times they can be really good, next you need the best tips and strategies for avoiding excess charges, keeping your account secure and avoiding spiralling credit card debt.

This is the last article in the Credit Card mini-series guide. To catch up, rewind to How Does a Credit Card Work in the UK and Seven Reasons Why Credit Cards Can be Really Good!

  1. Take an interest in interest
  2. Six ways to keep your credit card secure
  3. Monitor your credit card spending
  4. Pay the balance in full each month
  5. Always pay more than the minimum
  6. Make payments on time
  7. Set up Direct Debit
  8. Avoid using a credit card to take out cash
  9. Keep your credit utilisation low
  10. Not using your credit cards much?

Take an interest in interest

Any money you spend on your credit card will have to be paid back with interest, which can seriously add up. This is where the lender makes their money.

For example, if you use a credit card with 20% APR interest on purchases and don’t pay it off in full each month, at the end of the year that £5 latte just cost you £6. That may seem a small change. But the more you spend, the worse this gets. Those £200 concert tickets now cost you £240 by the end of the year.

In fact, it’s worse than this. The longer you leave that purchase (ie, debt) on your card, the more you’ll pay. Effectively, you’re paying interest on top of interest.

Now, over three years those £200 concert tickets could cost you £350. Would you have still bought them if they were almost double the price?

The average credit card interest is 18.5%


Some credit card issuers will offer 0% interest-free periods on new spending or if you transfer a balance from another card. Sounds tempting, huh? Whilst it can be useful, remember, this is often used to lure new customers into spending more in the long run.


Six ways to keep your credit card secure

In 2017, almost five million people had money taken from the credit card or bank account.

The Independent, 2018

Credit card fraud affects millions of people. So stay safe and secure by following these golden rules:

  • Don’t leave your card hanging around. Sounds obvious, right? But you wouldn’t leave £2,000 in cash on a bar.
  • Look for ‘https’ in the website address when shopping online. This shows the site is secure and your payment data is encrypted.
  • Avoid shopping on public WiFi. Online transactions are the most vulnerable ways hackers get your data. In addition, public WiFi hotspots are unsecured networks. Stay safe and only use your devices and trusted WiFi.
  • Watch for suspicious emails. Hackers are very good at sending emails that look like the genuinely from your lender. But in reality, they are trying to get your very lucrative account information. Look for anything that doesn’t look quite right. If in doubt, don’t click on any links or enter any data. Instead, browse to the website, use your app to log in or call your lender directly.
  • Lookout for withheld numbers. Scammers often call you pretending to be your lender. If they are showing as ‘unknown number’, simply explain you will call them back on their main published number online. Never give your personal details over the phone.
  • Keep your PIN safe. Never, ever write it down. Consider using a password manager such as LastPass to automatically remember your password. They’re convenient, safe and secure.

1. Monitor your credit card spending

One of the biggest reasons credit card debt can spiral is by people sticking their hand in the sad. We get it, it can be scary. But it’s a surefire way for your spending to quickly get out of control.

First off, set up your account view. These days, monitoring your balance has never been easier. Use the online portal and save it to your favourites. Even better, download the app. It’s fast, safe and secure.

Next, you need to make sure you check the balance regularly. At least once a month. Use your phone calendar or a task manager app such as Todoist and set up a monthly recurring task that automatically reminds you to log in and check the balance.

In addition, many cards will allow you to set automatic alerts when your balance reaches a certain amount.


2. Pay the balance in full each month

When you spend money on your credit card you will usually have an “interest-free” period to pay back the credit – typically around 30 days. This means you can borrow money over a short-term and pay it back when you get paid.

If you don’t pay this off in full each month, interest is charged which snowballs each month.

The average UK household owes £12,887

BBC, January 2017

Paying off the balance each month means you access the benefits of having that card (rewards, cash-back, protection etc) without the escalating interest rates.

It’s true that clearing the balance each month can actually negatively affect your credit score. But remember that’s because the lender knows they won’t make as much money in interest from you. This isn’t a reason not to pay the balance each month.


3. Always pay more than the minimum

Life isn’t always an ideal universe. Stuff happens and get’s in the way of our best-laid plans. So if you can’t pay the balance in full each month, at least pay as much as you can.

Then, have a plan for paying back the deficit as soon as you can.


4. Make payments on time

Missing just one payment can have a devastating effect on your credit rating and can follow you around for years. Six years to be precise.

Applying for a mortgage but missed a single credit card payment five years ago? Yep, they’re going to see that and it’s going to count against you.

Rule number one isn’t to ‘not talk about credit cards’It’s making sure payments are set up on automatic direct debit. Do not skip this step.


5. Set up Direct Debit

The best way to making sure you never get hit with a missed payment on your record is to set up Direct Debit.

  • Direct Debit can be set up online.
  • Select either ‘balance’ (ideal), a set amount (if you must). or minimum (just don’t).
  • Some lenders will allow you to choose a payment date. Go for just after payday, then it’s done.

6. Avoid using a credit card to take out cash

You can take out cash on your credit card from a cash machine. But that doesn’t mean you should. It attracts significantly higher interest. Think a crippling 26% plus.


7. Keep your credit utilisation low

Lends are always looking at what percentage of your available credit limit are you actually using. In turn, it affects your credit score.

  • Less than 30% – this is the ideal range and keeps that credit score looking healthy.
  • 50 – 75% – amber warning and may have an effect on your credit score.
  • More than 75% – red warning flags. This will very likely be negatively impacting your credit score.
Remember, lenders are looking at your total credit utilisation across all of your cards, not just theirs.

Not using your credit cards much?

Keeping a low utilisation, ideally under 30%, is ideal. But to keep a healthy credit score, you must demonstrate to lenders that you have a track record of paying back over time and on time.

Having a card with zero balance just gathering dust actually negatively impacts your credit score. It shows the lender they have little chance of making money from you.

If you have multiple cards and some you’re not using, consider closing at least one-off. Your credit score will thank you.

Following these guidelines for managing credit cards will ensure a healthy credit score, keep your cyber-self secure and avoid spiralling credit card debt.



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