10 golden credit card rules

The Government has unveiled plans to give a ‘better deal to consumers’. These include banning credit card providers from sending issuing cheques unless the customer has asked for them; or increasing a customer’s credit limit unless it has been requested.

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Providers will also be restricted on when they can increase interest rates – and the Government will also consult on whether minimum repayments should be increased and whether card firms should be forced to change their payment hierarchies.

It’s easy to get stung by credit card fees and charges but there are ways to ensure you aren’t caught out. Here are our 10 golden rules:

Rule one: Pay off the card in full if possible

If at all possible, pay your credit card bill in full each month, that way you avoid paying any interest.

Rule two: Set up a direct debit repayment

Miss a repayment and you’ll be fined up to £12, not to mention the serious harm it could do to your credit rating. So set up a monthly direct debit payment even if only to pay off the minimum just to ensure you never miss the deadline – you can always pay back extra over the phone or online.

Rule three: Pay back more than the minimum

Just making the minimum repayments on a credit card is a dangerous affair – it could take you decades to pay off even a small debt and the interest you repay could be huge. For example, a £5,000 debt on a card with an interest rate of 18.1% – on which you are only required to pay 2% (with a minimum of £5) of the outstanding balance each month – would take 48 years and five months to repay at a total cost of £11,160 in interest.

Rule four: Pay back the most expensive debt first

If you have multiple credit cards then concentrate on the one with the highest rate of interest and just make the minimum repayments on the others until that debt is cleared.

Rule five: Don’t exceed your credit limit

You will be given a credit limit when your application for a card is accepted – and this is effectively a spending cap. Exceed it and you’ll be fined for your trouble – usually around £12 – and your card will be blocked.

Rule six: Fix your credit rating before you apply

Three million customers have had a credit card application rejected in the last year. This can harm your credit score which will reduce your chances of being accepted for any further credit card, loan or mortgage applications. So, as Tim Moss, moneysupermarket’s head of loans and debt recommends in our video, ‘Best tips to save time and money’ obtain a copy of your credit profile and try to improve your rating before you apply – such as by registering on the electoral roll and cancelling cards you no longer use. Our article ‘How to improve your credit score’ offers more advice.

Rule seven: Play the 0% game if you can

Though you will be charged a balance transfer fee for moving your debt to a 0% balance transfer card (typically around 2.9%), you will be able to chip away at the amount you owe without paying additional interest for the length of the introductory offer. However, if you haven’t paid off the debt at the end of the 0% period you should switch to another 0% deal or you will move to the provider’s typical rate.

Interest-free deals are only available to those with excellent credit scores.

Rule eight: Don’t use one card to spend AND repay debts

Many customers take out 0% balance transfer cards with short 0% offers on purchases assuming it’s OK to continue their spending. However, at the end of the 0% purchase period you’ll be charged interest on any spending you have made because most card providers use your monthly payment to clear the cheapest debt first. Therefore, you won’t start paying off your purchases until your transferred balance has been totally paid off.

It is therefore worth having two separate cards – one for spending with and one for your balance transfer – or opting for a deal that offers the same interest-free period for both purposes. 

Rule nine: Take out a separate card for overseas use

A credit card is one of the safest ways of spending overseas but if you use your regular plastic while abroad, you’ll be hit with a range of charges including foreign loading fees. So take out a card to use exclusively overseas as explained in our article ‘Are you playing your cards right abroad?.

Rule 10: NEVER use a credit card to withdraw cash

We’ve saved the most important rule for last. The costs are so high for withdrawing cash with a credit card that you’ll be severely stung if you make this mistake. Not only will you be hit with an interest rate on the withdrawal – typically around 25% – but you’ll also have to pay a fee and you’ll accrue additional interest from the day the withdrawal is made.

Here is a rundown of some of the leading deals depending on what you need a credit card for:

To pay off an existing debt:

The Virgin Credit Card offers 0% for 16 months on balance transfers with a 2.98% fee. However, don’t be tempted to spend on this card as well because the interest-free period lasts three months after which time you’ll be charged interest at the standard rate, which is typically 16.6%.

To pay off a debt and spend:

The Halifax All in One Card offers 0% on balance transfers and purchases for nine months with a 3% fee. Aim to clear your debt during the interest-free period as you’ll be charged interest at a typical rate of 15.9%, once it ends (the ‘typical rate’ must be offered to at least two thirds of customers. But a third of customers could be charged a higher rate – this depends on your credit score).

Longer term borrowing:

The Barclaycard Simplicity card is ideal if you won’t be able to clear your debt during the interest-free period available on other cards and don’t want the hassle of moving from one 0% card to another. Simplicity is also a good alternative to a personal loan as the rate is just 6.8% – this applies to purchases and balance transfers, and there is no balance transfer fee. However, bear in mind that the rate is variable so it could go up (most rates on unsecured personal loans are fixed for the term of the deal).

Also, Barclaycard Simplicity is only available to those with excellent credit ratings so unless you have a perfect credit history there is no point in applying for this deal.

To earn rewards:

If you pay off your balance in full each month then you can earn cashback with the American Express Platinum Cashback Card. You earn 5% cashback in the first three months up to a maximum spend of £2,000. Thereafter, you earn 0.5% on the next £3,500 spent on the card. This rises to 1.0% on spending between £3,500 and £10,000 and 1.5% if you spend more than £10,000. 

However, the typical interest rate is 18.9% so this type of card is only suitable for those who do pay their credit card off each month, otherwise the interest you’ll be charged will far outweigh the value of the reward.

For overseas use:

Most credit cards charge you if you use them abroad. However, the Santander Zero Card is one of the few that doesn’t. This card still shouldn’t be used for withdrawing money from a cash machine – while you won’t incur a withdrawal fee you will be charged a higher rate of interest, 27.9%, compared with 18.9% for purchases.

To build up your credit score:

The leading credit card deals are only available to those with the good credit scores, but if yours is less than perfect, or you don’t have much of a credit history, Capital One’s Classic card could be a good way of improving your credit score. The interest rate is high at 34.9% so you should look to clear your balance each month. But if you are able to demonstrate you can manage credit, it will improve your chances of being accepted for more competitive deals in the future.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing. Products underlined can be applied for directly.

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