Should I get a credit card?

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nalibz
nalibz Posts: 2,724 Forumite
Hi everyone,

I have recently graduated from University and have been in employment for a few months now so I am very lucky to have a steady income and no need for any loans right now..

My question is though, should i get a credit card? I was speaking to a friend of mine the other day and they said that I should get one in order to build up my credit score so i can get a mortgage in the future? I've always vowed not to get one, because I'd never want to spend money I don't have but should I anyway?

Thanks for your help!,

n:)
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  • bitterSTAR
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    If you are good with your money then I'd say get a credit card and do all your purchasing on it ensuring you leave your salary in your bank account to pay it all off each month and never carry a balance over. This way you build yourself a credit rating and are also covered for purchases over £100 under section 75. Perhaps try finding a card that gives you cashback, such as the american express platinum card? That way you earn a little bit of money just for using it too?
    Cashback Earnt so far in 2009: AMEX £133.93, wepromiseto.co.uk £67.07, Barclaycard £25, MobilePhoneExchange: £28. TOTAL: £254.00
  • Breezy85
    Breezy85 Posts: 176 Forumite
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    I now use my CC (s) and spend on them what I would normally spend using my debit card so my wages stay in my bank all month and earn interest (allbeit pittance lol) then pay when the statment comes through, although I guess you have to be quite good with money with this and remember not to spend on CC AND your wages.

    Breezy ;)
  • nalibz
    nalibz Posts: 2,724 Forumite
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    Thanks for your help guys :)

    Its ridiculous how naive I am about credit cards, but I have a couple more questions..

    1) Do I have a normal account balance with a credit card? and then at the end of every month the total amount of spending gets deducted from that balance? and if this is the case, how do I know how much I have spent?

    2) Is it really beneficial to get a credit card? ie. Would I be at a disadvantage if I didn't get one?

    Thank you again!

    n:)
  • bitterSTAR
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    1) Your balance starts at £0, and increases for everything you buy - resembling the amount you owe the credit card company. Each month you'd get a statement, with your total spending for that month, and you'd pay off however much of it you wanna pay off. I recommend paying the full amount each month, so that you do not get charged interest for carrying some of the balance over to the next month. There is always a minimum payment you must make though, so you can't go a month without paying anything. And there is always a deadline to make the payment by too! which is usually 2-3 weeks after the statement date.

    To know how much you've spent you can check your monthly statement, or alternatively login into the credit card provider's website (if they provide an online service).

    You'll also be given a credit limit, which is a balnce you are not allowed to exceed, if you do you'll be charged. If you were approaching the limit, you can make an additional payment to ensure you stay within your limit.

    2) I'd say it's beneficial to get a credit card for two reasons, a) you are building up a good credit rating which will help in the future, and b) you are covered on purchases over £100 for companies who won't refund you. If a company won't refund the purchase, you can contact the credit card company to dispute the payment. Whereas it's a different story with debit cards and current accounts.
    Cashback Earnt so far in 2009: AMEX £133.93, wepromiseto.co.uk £67.07, Barclaycard £25, MobilePhoneExchange: £28. TOTAL: £254.00
  • nalibz
    nalibz Posts: 2,724 Forumite
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    bitterSTAR wrote: »
    1) Your balance starts at £0, and increases for everything you buy, resembling the amount you owe the credit card company. Each month you'd get a statement, with your total spending for that month, and you'd pay off however much of it you wanna pay off. I recommend paying the full amount each month, so that you do not get charged interest for carrying some of the balance over to the next month. There is always a minimum payment you must make though, so you can't go a month without paying anything. And there is always a deadline to make the payment by too! which is usually 2-3 weeks after the statement date.

    To know how much you've spent you can check your monthly statement, or alternatively login into the credit card provider's website (if they provide an online service).

    You'll also be given a credit limit, which is a balnce you are not allowed to exceed, if you do you'll be charged. If you were approaching the limit, you can make an additional payment to ensure you stay within your limit.

    2) I'd say it's beneficial to get a credit card for two reasons, a) you are building up a good credit rating which will help in the future, and b) you are covered on purchases over £100 for companies who won't refund you. If a company won't refund the purchase, you can contact the credit card company to dispute the payment. Whereas it's a different story with debit cards and current accounts.

    I see, thank you again..!

    So from what you're saying, its like the reverse of a debit card.. my balance will go up the more I spend and then at the end of the month I get a statement and can then pay off that balance. I assume I can transfer the money from my other account (where my salary is paid into)? Also, am i allowed to pay off the balance before I get the statement..ie.just randomly during the month?

    I guess you just have to hope the statement doesn't get lost in the post or some hefty interest charges could come your way!!
  • nalibz
    nalibz Posts: 2,724 Forumite
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    random additional question if anyone knows the answer..

    I was just looking into ISAs and can see that you are able to put £3,600 per year into one and have the interest tax free.. however, Martin then goes on (in his ISA article) to say that in the following april "you can put another whole £3,600 in".. Does that mean you get tax free interest on the entire £7,200 balance?

    Thank you!
  • bitterSTAR
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    Yes the balance works just like you said! And you can pay the balance off by either paying over the phone or online with a debit card, setting a direct debit up, or by bank transfer. Some card providers limit how many payments you make per month, for example a limit of 2 payments per month.

    If I were you, I'd get a direct debit set up for the full amount each month, then you'd never ever miss a payment! I have done exactly that with my American Express!

    As for the ISA, that is absolutely correct! You get tax free interest on the whole balance of the ISA, it's just the maximum deposit is £3600 per year. If you take some of the money back out during the year, you can't put it back in though. £3600 is the maximum deposit across the whole year, i.e. if you put £1000 in and take it back out, you can then only pay £2600 in - until the next financial year.
    Cashback Earnt so far in 2009: AMEX £133.93, wepromiseto.co.uk £67.07, Barclaycard £25, MobilePhoneExchange: £28. TOTAL: £254.00
  • bitterSTAR
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    Also, if you make a payment prior to a statement being issued - you'll still need to make the payment that is demanded by the statement when you receive it. The statement will not take the early payment into account when it asks for a minimum payment. The early payment would've reduced your balance, but will not stop the credit provider asking for a minimum payment on the remainder of the balance.
    Cashback Earnt so far in 2009: AMEX £133.93, wepromiseto.co.uk £67.07, Barclaycard £25, MobilePhoneExchange: £28. TOTAL: £254.00
  • Voyager2002
    Voyager2002 Posts: 15,334 Forumite
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    Yes, both credit cards and cash ISA savings could be useful for you.

    I suggest you visit your bank at a time when they are not busy and ask them to explain both products to you. However, don't accept the ones they offer you. For credit cards, look at Egg Money: good if you intend to repay all your spending each month, since you get cashback of one per cent of what you spend. Be sure to set up a direct debit so that your balance will always get paid, even if you forget or lose a statement.
  • nalibz
    nalibz Posts: 2,724 Forumite
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    bitterSTAR wrote: »
    Yes the balance works just like you said! And you can pay the balance off by either paying over the phone or online with a debit card, setting a direct debit up, or by bank transfer. Some card providers limit how many payments you make per month, for example a limit of 2 payments per month.

    If I were you, I'd get a direct debit set up for the full amount each month, then you'd never ever miss a payment! I have done exactly that with my American Express!

    As for the ISA, that is absolutely correct! You get tax free interest on the whole balance of the ISA, it's just the maximum deposit is £3600 per year. If you take some of the money back out during the year, you can't put it back in though. £3600 is the maximum deposit across the whole year, i.e. if you put £1000 in and take it back out, you can then only pay £2600 in - until the next financial year.

    Yeh, I was just doing a little research and it said exactly what you just did.. to pay off the balance in full by direct debit each month. What I'll probably do in that case, is to get a credit card and then set up a direct debit to take the full balance out of the account that my salary gets paid into every month..then everyones happy!

    Think I might also get an ISA, in which case in ten years I could be getting interest on £36,000 tax free! (If I am ever able to save that much :rotfl: )
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