Building My CC Knowledge/Comfort

Robin_TBW

I know all about ISAs, savings and some basic investment and protection products but one thing I know absolutely nothing about is credit cards and I was hoping you guys could help in answering a few questions. The reason I ask is that in a year or so I'll be looking at purchasing my first property if all goes to plan and a better credit rating would probably be of help.

I've never had a credit card currently, the only contract I've had is my mobile phone bill. It's never been late. I have a student loan that's being paid off slowly.

Anyway, I basically have no idea how to run with things.

If I was to get a credit card I'd be looking to pay off the balance as soon as it was due. I've never been into my overdraft before. The easiest way for me to keep track would be if the card was with the bank I hold my current account with as their online banking and mobile banking works really well for me. The percentage though, I honestly don't know, is this added on to the cost of whatever you owe on the card from day one of making that purchase or if you're late on a payment? How long would I generally have to make the payment that was due at the end of each month?

Basically I'm looking for a dummies guide as I'm going from scratch and I don't ever want to worry about going over any limit or paying percentages that will make something cost more than the purchase was in the first place. I just want it to raise a credit rating and nothing more.

I'd probably be using it for train tickets (travel to work) and petrol costs. Overall in a month this cost would be less than £200.

Apologies for my completely idiocy and ignorance. Thank you guys for any help you can offer.

grumbler

Robin_TBW wrote: »

...
Basically I'm looking for a dummies guide as I'm going from scratch and I don't ever want to worry about going over any limit or paying percentages that will make something cost more than the purchase was in the first place. I just want it to raise a credit rating and nothing more.....

• Never use it in ATMs and for 'cash transactions' like gambling.
• If the limit is small keep a close eye on your spending and never exceed the limit.
• Set a DD to pay the balance in full and make sure that there is enough money in the current account on the DD date.

I guess that's it.
And try getting a card that pays cashback or offes some other benefits.

[Deleted User]

You have an interest free grace period on CC purchases of up to 56(?) days.

For example, imagine if your statement date (ie the date that your statement is created) was the first of the month and you have £500 on your card at that point. Your bill is normally due about two weeks after this, if you pay in full you will be charged no interest.

If you don't pay in full you will be charged interest on everything that is outstanding. So, say your bill was £500 and you only paid £100, that leaves £400 left on your card on which you will be charged. For argument sake, say your APR was 10% (because I'm crap at maths!). This is an annual percentage so if you were to owe £400 for a whole year it would cost you a total of £40 (10%) interest. Divide that by 12 to work out the monthly interest rate on an amount, in this case £3.33.

Anything you buy after your statement date will go onto next months bill. So if your statement date was the first with the billing date the 14th, anything you bought on the 2nd, 3rd, 4th etc would be due for payment on the 14th of the following month. Does that make sense?

Anyway this is irrelevant if you're going to pay in full each month. If you do this there will be no interest at all. It wouldn't matter if your APR was 1% or 30%. You mention that you'll use it for petrol and travel, but if you're going to pay in full then you should maybe think about getting a cashback card and using it for all your spend instead of your debit card.

Robin_TBW

What's the difference in a cashback card and credit card? I really am not joking when I say I know nothing about credit cards. It's embarrassing to a degree. Just want to make sure the credit rating is solid for in the future, is there a way I can check how it stands at the moment?

[Deleted User]

A cashback card is just one of the types of credit card that can reward you for using it. In this case, you get a small % of everything you spend back as cash every 12 months.

Other cards might give you airmiles, Nectar points, and so on.

All are credit cards so all work in broadly the same way, but it's obviously better to get something back than nothing, if your credit rating allows you to get a decent card.

cats2012

I echo all the above but just want to add one point that may seem obvious but really confused me when I started on credit cards a few years ago...

If your first statement (on, let's say 10th of the month) has a balance of £200, that amount will, as said above, be due about 2 weeks later, so let's say the 24th. If you have a direct debit set up for the full amount, £200 will be taken on about the 24th.

When you then spend, between the 10th and the 24th, your balance will go up. So if you look at your account on maybe the 22nd of the month, it might be £350 if you've spent another £150 in that time. However on the 24th the £200 will be taken and the balance will go down to £150, which will be some/all of what's there on the 10th for the next statement.

This sounds obvious, but depending on what your limit ends up being it is easy to slip up. For example, if you only had a £500 limit and had £400 at your statement date, you could only spend another £100 before the £400 payment was taken, then you'd have "spare" limit again.

Robin_TBW

Sounds confusing. This is why I've avoided them in the past :-/

JakeGreen

Apply for a credit card. Get a credit card. Buy things with it. Stay within your limit.

One month later you'll receive a statement, either on paper or online. Check the transactions for any anomalies. Study what it says and make the payment by the date the payment is due by.

This will help build your credit profile.

Cashback cards give you rewards for every pound you spend using the card. Some give 'cash' others give points, airmiles or vouchers.

Don't use the card to withdraw cash from a cash machine, this will hurt your credit profile.

A number of us here on the credit card forum use credit cards to our advantage, essentially making us money on our everyday shopping or making our shopping a few percent cheaper depending on how you regard cashback.

Good luck!

danzao

Basically I'm looking for a dummies guide
as I'm going from scratch and I don't ever want to worry about going over any limit or paying percentages that will make something cost more than the purchase was in the first place. I just want it to raise a credit rating and nothing more.

JakeGreen

danzao wrote: »

I don't ever want to worry about going over any limit or paying percentages that will make something cost more than the purchase was in the first place

You can set text or email alerts as you approach your credit limit on most credit cards available nowadays.

Ultimately it's up to you to monitor your spending to make sure you don't go over your limit.

If you pay the balance in full by the date it says on your statement you'll never pay any interest... provided you don't go over your limit!

bigadaj

If you are charged for a credit card transaction this is always explicit so you can avoid.

Also remember to allow a few days before the deadline for payment, as any form of payment can take some time to go through. Direct debit for full amount is a useful option, though still check your statements to check the transactions are correct.