Should I get a credit card? | moneyfacts.co.uk

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Published: 07/12/2021
woman handing over card to pay in restaurant

Credit cards can be a great way to manage your finances, and if used wisely they can be a valuable addition to your credit mix. They may even help to improve your credit score, though as with any form of credit, they won’t be right for everyone. So, should you get a credit card? Let’s find out.

What are the benefits of credit cards?

  • Credit cards essentially allow you to “buy now pay later”, rather than needing to rely on the money available in your current account, and as such can be a great way to help manage your finances.
  • They can be especially beneficial in the case of emergencies, when you may not have the available cash up front.
  • They can also allow you to spread the cost of purchases, and if you choose the right deal – namely, a 0% purchase credit card – you needn’t worry about paying interest for a specified period.
  • Some cards allow you to earn cashback or rewards for simply spending as you normally would, and others can offer discounts at certain retailers.
  • There are different types of credit card available that can be used for different purposes. Find out what they are in our complete guide to credit cards.
  • By spending on a credit card rather than a debit card, you’re protected under Section 75 of the Consumer Credit Act if you have a dispute with the seller.
  • By showing that you can effectively manage a credit card, you’re proving to lenders that you’re a responsible borrower, which can have a positive impact on your credit score.

How many credit cards can I have?

Technically, you can have as many credit cards as you like, but the number you’ll actually be approved for will depend a lot on your other credit commitments and how you manage them. Lenders will take a close look at your current borrowing level to see how much credit you’ve got access to and whether you’re managing it appropriately – for example, if you’ve got several cards but pay them off on time and are only using a small percentage of your credit limit, lenders may not mind offering you another one. If, on the other hand, you’re maxed out on all your cards and sometimes miss a payment, you’re less likely to be approved for more.

How many credit cards should I have?

This is a much more personal question but is arguably even more important, because just because you can have several credit cards at your disposal, doesn’t mean you necessarily should. Credit cards can be incredibly helpful when used wisely, but if not managed effectively, they can suck a user into a cycle of debt that can be difficult to get out of. For this reason, it’s important to think carefully about whether you should take on another card, particularly if your finances aren’t in the best shape, and only ever use credit if you’re confident you can pay it off effectively.

 

That said, having more than one credit card can be useful, particularly if you’ve got different cards for different purposes. For example, you may have a big purchase coming up and want to spread the cost with a 0% purchase card, or perhaps you want to use a cashback card for everyday spending (provided you’re in a position to pay it off each month, lest the benefit of any cashback you’ve accrued be overridden by interest payments). If you’re going to have more than one credit card, the key is to make sure that each one has a purpose, and that you use them responsibly – which means making at least the minimum payment each month but ideally more, and if you can, avoiding interest adding to the bill.

Does my credit score affect getting a credit card?

Yes. In fact, it’s arguably the single most important factor in whether or not a lender will approve your application, so it’s important to check your credit score before you start applying so you know where you stand. A low score means you’ll be viewed as a credit risk and as such are unlikely to be accepted (unless you’re opting for a credit repair card), whereas a high score means you’ll have access to the best rates, terms and interest-free deals. You’ll want to check your eligibility before you apply, too – most card providers have eligibility checkers on their websites that perform a “soft search” on your credit file, which means it won’t show up on your credit report if you’re declined. This isn’t the case with a full application, which will involve a full search and a black mark on your report if you’re rejected.

Compare credit check providers here.

What is better, a credit card or an overdraft?

This will depend on what you’ll need the credit for, and how you’re planning on paying it back. Overdrafts are typically used as a back-up option in situations where you have unexpected payments coming out of your current account, and because interest rates can be high – often higher than with credit cards – you’d be wise to pay the amount back quickly. Credit cards, on the other hand, are better for planned purchases, and in many cases you can avoid paying interest altogether. Both can be useful though, ideally, overdrafts shouldn’t be relied upon on a regular basis.

Compare current account with overdrafts here.

What is better, a credit card or a personal loan?

This again depends on your reason for borrowing the money, as well as the amount you’re looking to borrow. Personal loans are often preferred for larger purchases and typically have lower rates than credit cards, and they have the advantage that repayments are set each month – which means the amount will be fully repaid by the end of the loan term. Credit cards are more flexible and have interest-free options, but there’s also the possibility that you could end up paying more if you fail to repay the full amount by the end of the interest-free term.

What are the alternatives to a credit card?

Overdrafts and personal loans are perhaps the most obvious alternatives to credit cards – besides your debit card – but there are others to consider. Prepaid cards, for example, can be ideal in situations where you don’t want to overspend, or you may like to look to peer-to-peer lending or credit unions, or even secured loans if you’re a homeowner and need to borrow a substantial amount.

Should I save or have a credit card?

This depends on your financial situation and your ability to manage credit effectively, as well as the purchase you’re looking to make. If you’ve got time to save up in advance, you may like to put money aside on a regular basis before buying – this has the added bonus of allowing you to accrue interest, which can add to your savings pot – which is where the best savings accounts can come in. However, if you’d rather spread the cost of your purchase and are confident you can keep up with the repayments, you could opt for a 0% purchase credit card instead.

 

However, if you’ve already got savings as well as interest-bearing credit card debt, it may be prudent to use your savings to repay the balance. This is because the interest you’ll earn on your savings will likely be far less than the interest you’re being charged on your credit card (again, unless it’s an interest-free deal) so it could make sense to re-evaluate how to make the best use of your cash.

I am a student, should I get a credit card?

As a student you may not be earning a substantial amount, which means it’s important to think carefully before you take out a credit card. Having access to credit can make it easy to spend money you haven’t got, which can lead to problems later down the line if you’re struggling to repay the debt, particularly if you’re being charged a lot in interest.

 

That said, if used wisely, a credit card can be beneficial during your student years. They can help to build your credit score, which can be useful when you’re looking for other forms of credit (such as a mortgage) later on, and can help with budgeting and financial management. There are some credit cards available that are specifically designed for students, too, though they typically come with lower credit limits and higher rates.

When to consolidate credit card debt and what are the options?

If you’ve got high balances on several credit cards and/or you’re being charged a high rate of interest, it may be time to consider consolidating your debt. This is where a 0% balance transfer card can come in, which allows you to transfer balances from other credit cards and benefit from an introductory interest-free period, giving you time to repay the debt before interest kicks in. Another option could be using a personal loan, the benefit being that you’ll make set repayments and will be debt-free once the term comes to an end.

When shouldn’t I get a credit card?

You shouldn’t be tempted to get a credit card if you’re already struggling financially, as doing so has the potential to make things far worse. You need to be confident that you can afford to make any repayments – ideally paying off the full balance each month –or making at least the minimum payment if you’re in an interest-free period – and if your credit score isn’t up to scratch, it’s wise to work on improving it before you start thinking about applying for credit.

 

However, if you’re confident that a credit card fits the bill, it’s time to get searching! Check out our dedicated credit card charts to find the one that’s perfect for your needs.

 

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

woman handing over card to pay in restaurant

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