Credit cards can be a low or zero cost way to borrow if you use them in the right way — but get it wrong and you could find your debts spiral out of control.
What’s in this guide
Keep your PIN secure
- Don’t store your PIN with your card, or give it to anyone else. If you do, and someone takes the card and uses it, the bank won’t pay you back what’s stolen. They’ll pay you back in most cases if it wasn’t your fault.
- Change your PIN to something you’ll remember. You can do this at most cash machines. Pick a number you can remember, but not something others could guess, such as your date of birth.
Check your bill
- Make sure all the payments listed on your credit card statement are for things you bought, and query anything you don’t recognise.
- If you get your statement online, it can be a good idea to check it on the same date every month – say a week before the payment’s due. This is so you get in the habit of making sure everything is in order and you pay your card off on time.
Plan to pay off in full each month
It’s a good idea to plan to pay off your credit card balance in full each month. This means you won’t be charged interest.
If you don’t completely clear your balance, you’ll usually be charged interest on your outstanding balance. This will exclude anything covered by a promotional rate.
For example, if you ran up a credit card bill of £100 during the month and paid off £90 at the end, you could be charged interest on £10.
Avoid the late payment trap
If you don’t pay your bill on time, there could be some serious consequences:
- Fees and charges: you’ll be charged a late payment fee (which could be as much as £12), plus interest on the whole amount you owe.
- Increased interest rates: if you often pay late, your card provider might increase your rate, reduce your credit limit or cancel your card.
- Problems getting other credit: paying late can damage your credit rating. This makes it harder to get other credit, mortgages, other cards and even phone contracts.
But there are ways to avoid paying late:
- Pay by Direct Debit: the best way to avoid the late payment trap is to have the money go out of your bank account automatically. Ideally, set up a Direct Debit to pay off the full amount every month.
- Pay manually: if your income varies from month to month or you’re worried you might not have enough money in your account to cover a Direct Debit.
- Pay with time to spare: although you can pay your credit card bill by phone or online from your bank the same day, it can take a few days to process your payment. So avoid leaving it to the last minute.
Avoid the minimum payment trap
The minimum amount you need to repay on your card each month is often quite small. But paying just this amount will cost you a lot in the long run.
You could be making repayments for years and end up paying more in interest than the original debt.
Let’s take an example of a debt of £1,000 on a credit card with 16.9% APR.
The minimum repayment for this card is 2% of the balance, or £5 – whichever is more.
The first payment will be £20, but this figure will fall as you repay the balance.
The table shows how much you could save if you repay the same amount every month on a £1,000 balance.
| Monthly repayment | Time you take to repay | Interest you pay | Total you’ll pay back |
|---|---|---|---|
|
Minimum (2% of balance) |
22 years, 11 months |
£1,530 |
£2,530 |
|
£20 |
6 years, 10 months |
£635 |
£1,635 |
|
£50 |
2 years, 8 months |
£167 |
£1,167 |
|
£100 |
11 months |
£78 |
£1,078 |
|
£250 |
5 months |
£34 |
£1,034 |
|
£500 |
3 months |
£20 |
£1,020 |
Remember, if you don’t pay off the whole bill, you’re likely to be charged interest on everything on the card. This will include new things you bought that month.
So, if you keep spending on that card, you’ll end up paying even more.
If you feel like your repayments are getting out of control, or you’ve been contacted by your card provider, help is available.
Credit card providers must contact and encourage people who have made very low or minimum payments on their credit cards for the past 18 months. This is where you have paid more in interest, fees and charges than you have paid towards paying off your balance.
Lenders are required to suggest higher affordable repayments. If you don’t respond, or ignore the issue, and the situation persists for more than 36 months – this could lead to your account being suspended.
Find out more in our guide Help if you’ve been contacted about your credit card and persistent debt
Keep within your credit limit
Don’t go over your limit. If you do, you’ll be charged a fee – normally up to £12.
It’ll also affect your credit rating too.
Increasing your credit limit
Contact the card provider to request an increased credit limit if you think you need to use your card more.
But only do this if you’re sure you can comfortably afford to repay the higher amount – and won’t be tempted to over-spend and end up owing more money.
Your card provider might offer you an increase in your limit but you can refuse this
Find out more in our guide How do you increase your credit limit?
Avoid cash withdrawals or credit card cheques
Credit cards aren’t like debit cards – you can’t withdraw cash for free.
You might pay have to pay a fee and you’re likely to be charged a higher interest rate when compared to purchases on your card. This is even if you pay off your card in full at the end of the month. This is because there’s no ‘interest-free’ period, unlike purchases.
Some other transactions might also be treated like cash withdrawals, and attract the same interest rates and charges. For example:
- buying gift cards
- buying postal orders
- gambling transactions
- competition entry fees
- buying foreign currency
- paying for something with credit card cheques (always avoid using these).
Avoid recurring payments on your credit card
A recurring payment lets a company put charges onto your credit card bill automatically. This is also sometimes known as ‘continuous payment authority’ (CPA).
But it’s not as safe as a Direct Debit from a bank account.
To cancel a recurring payment, contact your card provider and tell them you withdraw your permission for the company to take payments.
If payments are taken after that, the card provider must refund this money to you along with any related charges.
But you have to let them know no later than the end of the previous working day before your bill is due.
Recurring payments are best avoided because of the danger you won’t realise how much is coming out of your credit card account, and you might go over your credit limit accidentally, leading to charges.
