First time credit card

Notleks

I'm trying to decide if it'll be a good idea to get myself a credit card. I've never had one before, so I was thinking if it'll be wise to get one.

All I know about them is that you can borrow up to an agreed limit, and you get charged interest if you don't pay back in full. But all these terms and numbers like APRs and what not goes straight over my head, and don't really understand a lot of it.


So could someone explain a little about them, and if its worth getting one? I'm currently in full-time employment and living with parents (as much as I hate to say) and pay rent. I wouldn't be spending like crazy on it, but more of a "it's there just in case" kinda thing.

Ebe_Scrooge

Hmm. If you don't understand how credit works I'd be tempted to say "avoid". But for what it's worth :

APR = Annual Percentage Rate. It's a measure of how much interest you'll be charged, and is useful for comparing 1 card against another. In very simple terms, if you borrow £100 for 1 year at 10% APR, you'll pay back £110. In practice, if you don't repay in full each month, a quick Google will give you any number of calculators to show how much you'll pay in interest.

Yes, the best way to use cards is to put everyday spending on them, and pay in full every month. That way you don't pay any interest, and benefit from Section 75 protection ( again, Google it ), on any purchases between £100 and £30,000.

The card issuer will give you a credit limit, based upon your financial circumstances, and this will be different for everyone. For the sake of argument, let's say you get a £1000 limit. That means you can spend £1000 per month on the card, pay it in full when you get the statement, then put another £1000 on it next month.

Other benefits may include a reward of some kind ( airmiles, cashback, whatever ) for any transactions on the card. Although, the "best" cards are usually reserved for those with a solid credit history.

Which leads on to the next point - a credit card, used wisely, can improve your credit history. Lenders like to see a pattern of responsible borrowing and repayment, so if you regularly use the card, and regularly pay it back in full, this shows them that you're good at managing money and always repay your debts. Handy when it comes to getting a loan or a mortgage.

Downsides - it's all too easy to think "Wow, I've got £1000 available to spend, and I only have to pay back the minimum of £20 per month ( or whatever it may be ). Party time !!! " This quickly leads to a spiral of high interest charges, missed payments, debts, trashed credit history, etc. etc.

So yes, a credit card used sensibly can be a great asset. When abused, it can cause years of misery.

[Deleted User]

The basics are you get one, use it regularly for things you'd buy anyway, and then clear in full each month. The APR is irrelevant as long as you pay in full each month and don't withdraw cash with it.

Don't use it as a 'just in case' kinda thing.

That way, you build a good credit history.