How to play your credit cards right

With countless headlines telling of struggling, debt-ridden Brits, everybody knows that a credit cards make bad masters.

However, they can make a great servants, you just have to play them right. To help, we’ve put together some top tips on making your plastic work for you – whether you want a card to help you clear outstanding debts, protect your purchases or reward you with cashback on all your spending.

Get rid of existing debt

The very first crucial first step of turning your credit card from master to servant is to clear any existing debt – as even average annual percentage rates (APRs) are a whopping 17.32%, says the Bank of England.

You can start by switching the debt to a card that offers 0% balance transfers which at least means you can stop paying interest.

Barclaycard’s Platinum Credit Card with Extended Balance Transfer, for example, charges no interest at all on transferred debts for two whole years.

If you think you can pay off your credit card balance within a shorter time, however, it is worth bearing in mind that the hefty 3.2% balance transfer fee could make this card a more expensive option.

Tesco has just increased the balance transfer offer on its credit card to 23 months, subject to a fee of 2.9%. The Clubcard Credit Card for balance transfers also now offers nine months at 0% on purchases.

For those who think they can clear their debts within a year, meanwhile, Barclaycard’s Platinum Lowest balance Transfer Fee Card charges a fee of just 0.9% (including a partial refund) for a 12-month 0% offering.

Keep your monthly balance at £0

Once you are on £0, the best way to ensure that you stay in control of your credit card – and not the other way around – is to stay there. This means clearing your balance in full every month which will mean you avoid paying interest or any other charges on what you owe.

The best way to do this is to set up a direct debit for the full amount every month.

Even if unforeseen circumstances mean you cannot afford to clear your credit card balance one month, you should still make a payment of AT LEAST the minimum amount by the due date.

Otherwise, not only will you face penalty charges of at least £12, you will also compromise your credit score, making it more difficult to borrow in the future.

If you are taking advantage of a 0% offer on either balance transfer or purchases, missing a payment can also result in you losing this promotional rate.

Protect bigger purchases

If you are buying an item worth more than £100, it is worth using your credit card rather than a debit card or cash as it will offer you protection on the purchase.

This is because it will fall under Section 75 of the Consumer Credit Act, which states that card companies are jointly and severally liable for credit card purchases of between £100 and £30,000 (even if you just paid for the deposit on your card).

The more recently introduced Consumer Credit Directive tops this protection up to £60,260. Spend between these amounts on your credit card and you will be protected if the retailer or service provider goes bust, the product is lost, faulty, damaged or not as described.

Spread the cost of big outlays

While it is sensible to clear your credit card balance every month where possible, there is no harm in using a 0% card to spread the cost of a large purchase – so long as you clear the debt within the interest-free period.

The Tesco Clubcard Credit Card for purchases currently offers 16 months at 0% on purchases, as well as nine months at 0% on balance transfers (with a 2.9% fee) and the chance to earn Clubcard rewards faster on your spending.

It does have a representative APR of 16.9% (variable) though, so any purchase debts lingering on after 16 months will cost you dear.

Alternatively, the M&S Credit Card offers 15 months’ interest-free spending and the chance to earn reward points. Its representative APR is 15.9% (variable).

Earn cash or rewards

But when it comes to getting rewards back on your credit card as the above cards enable you to do, it makes sense to choose a store that you use the most.

The Sainsbury’s Cashback Credit Card for example also 5% on all Sainsbury’s shopping for the first three months and 1% on any retail purchases made thereafter.

There are more general cashback credit cards available too, though. Top of the tables is the Barclaycard Cashback Card which offers a massive 6% cashback on your top five purchases in the first three months and up to 2% thereafter.

But it comes with a £24 annual fee that pushes its representative APR up to 24.8% (variable). The American Express Platinum Cashback Credit Card, meanwhile, pays you 5% for the first three months and up to 2.5% thereafter.

It too has an annual fee (of £25) that pushes its representative APR up to 18.7% (variable). This is why you must always pay the balance off in full at the end of the month as the interest charged on cards of this kind will soon dwarf any cashback gains.

Avoid rejection

Many of the market-leading credit cards are reserved for consumers with excellent credit scores. And the bad news is that being refused a credit card can further damage a less-than-perfect credit file.

Fortunately, MoneySupermarket has a SmartSearch credit-profiling tool that helps you to find the best credit card deals for your circumstances – without leaving a footprint on your file.

If in doubt, it is therefore sensible to use the SmartSearch tool before applying for a new credit card deal.

Improve your credit rating

Over-borrowing can undoubtedly damage your credit score. But having no credit history can be equally detrimental. Fortunately, there are credit builder cards aimed at people looking to improve their credit ratings.

These include Aqua Classic with a representative APR of 29.7% (variable) and Capital One Classic Extra at 34.9% (variable). Pay them off in full every month and you should soon qualify for better deals.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

We’re free, independent and compare all UK credit cards, as well as offering exclusive deals you can’t get anywhere else.

Contact at Moneysupermarket House, St David’s Park, Ewloe, Flintshire, CH5 3UZ. © Ltd 2011.

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