going credit card-less, sort of

kotys

Hi, I've been toying with the idea of not using credit cards anymore, apart from when traveling abroad and when making large purchases (to be covered by section 75). And even in these cases, the idea is to just use them, but pay them off straightaway. I have two credit cards: Barclaycard Platinum £7K limit which I use daily and pay it off in full, and Halifax Clarity £3K limit which I only use when I travel abroad. Both are at £0 balance. Any cons to not using the credit available to you? Does that hurt one's credit rating/worthiness/appeal to lenders for instance when it comes to applying for mortgages or loans? 

[Deleted User]

If you were to stop using credit, ultimately that would leave you with a very empty set of credit files, increasing your perceived risk to lenders.

Using credit cards sensibly is the easiest way to demonstrate you can handle credit.  But it doesn't have to be everyday, though there are no downsides and plenty of upsides to putting  everything on them.

sourcrates

It depends if you need your credit file any longer, if your still paying a mortgage, or want to borrow money in the future, then it makes good sence to keep your credit file ticking over as it were, some people dis-like credit cards due to the ease at which you can get into serious debt, others live their lives around them, its personal choice in the end.

kotys

Thanks @Deleted_User you are saying there are no downsides to putting everything on them but many people (including me in the past) spend money they don't have and find themselves with large, and for some people unmanageable debt, which then affects mental health, relationships, etc. I don't think most of us have the discipline (or even the know how in some cases) to use the credit cards in a way where we only benefit from them and we don't pay for it, in one way or another. 2020 made me think about the future a bit more and I believe the easiest way to avoid getting into large debt is not to incur any debt* at all. Only spend what you actually have? 

So you are saying it's not enough to have cards, you also need to use them regularly? To be creditworthy? Is once a month enough?

*I'm not including mortgages here. 

[Deleted User]

kotys said:

Thanks @Deleted_User you are saying there are no downsides to putting everything on them but many people (including me in the past) spend money they don't have and find themselves with large, and for some people unmanageable debt, which then affects mental health, relationships, etc. I don't think most of us have the discipline (or even the know how in some cases) to use the credit cards in a way where we only benefit from them and we don't pay for it, in one way or another. 

When I say everything, I mean everything you would normally be spending. Not everything you can possibly buy.  Most people have the discipline to manage it (as an example, most credit cards are cleared in full each month), but if you don't, then you will obviously need to be careful.

kotys said:

Only spend what you actually have? 

That's precisely what I'm suggesting. You just do it via credit cards rather than your bank account.

Simply owning a credit card doesn't show you can manage it, any more than having a car in your garage proves you can drive. Using it once a month is fine.

cymruchris

If today you’d spend £47 in Sainsbury’s on regular essential groceries  - next week £30 on petrol at esso because the fuel tank is getting low - £20 at dominoes for your once monthly pizza treat - all those kind of ‘regular everyday’ spends should go on your cards, and the money that would have been used in your current account kept there ready for the monthly statemented balance to be collected by direct debit.  Show that the cards are continuously used and well managed. The limits are then unlikely to be reduced through lack of use, and should you need to apply for any kind of finance in future, your file will show a better pattern of management. 

kotys

Thanks all, some food for thought here. My limits were never reduced though, not even on the Halifax clarity which gets used 2-3 times a year. I've only used it once in February this year. 

Deleted_User said:
Most people have the discipline to manage it (as an example, most credit cards are cleared in full each month), but if you don't, then you will obviously need to be careful.

Is that really the case? Any stats to back this up? Just out of curiosity... 

[Deleted User]

Yes- it's generally around two thirds.  

The BBA used to publish usage stats - now available via UK Finance.

kotys

PS. The MSE credit club rating says this: 

'We’ve listed your debt ratio as ‘fair’. This is when you have less than 1% of the income you’ve told us you have as debt, or if there are no credit accounts on your credit report. The reason we’ve listed this as ‘fair’ is because most lenders prefer to see some credit on your report to use as a basis for future lending.

So if you do have cards but pay them in full, you're still not attractive enough to lenders... according to MSE anyway, you need to maintain some debt. This is surely flawed? I have a fairly large mortgage which I repay every month, is that not enough debt?

D3xt3r5L4b

kotys said:

PS. The MSE credit club rating says this: 

'We’ve listed your debt ratio as ‘fair’. This is when you have less than 1% of the income you’ve told us you have as debt, or if there are no credit accounts on your credit report. The reason we’ve listed this as ‘fair’ is because most lenders prefer to see some credit on your report to use as a basis for future lending.

So if you do have cards but pay them in full, you're still not attractive enough to lenders... according to MSE anyway, you need to maintain some debt. This is surely flawed? I have a fairly large mortgage which I repay every month, is that not enough debt?

Ignore what the MSE CC suggests. It’s merely
regurgitated CRA mumbo jumbo. 

[Deleted User]

What you're looking at there is the Experian view.    Their rating systems is nothing like that used by lenders. 

But fortunately, no one sees or uses their ratings to decide lending.