How to use credit card properly to improve credit score

Froggy8

Thank you guys

I will try only spend what I can afford to pay in 1 month.

CliveOfIndia

Froggy8 said:

I will try only spend what I can afford to pay in 1 month.

In the words of Yoda, "No try, do".

Really, credit cards can be a very useful tool if used wisely.  But you really must never spend on them what you won't be able to afford to repay in full.  It doesn't matter how much or how little you spend, it'll still help to build up a good credit history.  When you spend what you can't afford, that's what leads to the vicious cycle of unmanageable debt.

The simplest way to look at it - every time you use the card, ask yourself "Could I buy this item for cash right here and now?".  If the answer is "no" then don't buy it on your credit card.

If needs be, set up a separate bank account, and every time you put a purchase on the card, transfer an equivalent amount from your main current account to the "payment of credit card" account.  Then use that money to pay your credit card bill in full every month - ideally by direct debit so you never forget (although, of course, you need to remember to transfer the money in the first place!).

But whatever method works for you, always pay the bill in full.

Froggy8

Many thanks again for the great advice.

Another thing is what is the best way to pay the credit card? Direct debit or bank transfer?

I was leaning more towards the bank transfer.

CliveOfIndia

Either way is fine.  The usual advice is to set up a Direct Debit for the Full Statement Balance, that way you'll never forget - especially if you're away on holiday or whatever.  But of course, you do need to make sure the cash is available in your account when the DD is called for!

But in terms of the card itself it makes no difference, just as long as you make sure it's always paid in full.

MalMonroe

Froggy8 said:

Thank you very much guys.

Apologies, I meant improve my credit report as I already know the number is not important.

Just one problem I havent mentioned, I am on a very low income.

I was planning on if I only did, let's say, 50 pound then I will pay it all off in 1 month but if its something like 150 pound then I could pay 75 in 2 months to pay it off.

How does that sound?

Many thanks again for the brilliant advice.

Hi, 

Please take my personal experience as a warning. For many years I totally misunderstood how to best use credit cards and ended up with a very large debt and a DRO on my credit report for 6 years.

During the time I was 'serving my time' as I put it then, I learned how to budget and I also listened to Martin's constant cry - "Pay your credit cards, IN FULL, every month". It took me ages to actually get that message!

Vanquis credit cards are 'credit building' cards and so anyone authorised to look at your credit report will see and note that, too.

If you cannot afford to pay the credit card IN FULL at the end of the month, then lenders again will know that you don't have the finance to clear the bill. And you'll be paying interest on the debt.

In itself, this doesn't seem to be a big problem but it will take you longer to build up a good credit report. By not clearing any debt in full you are demonstrating your inability to pay your debts.

When my DRO ended, I applied for and was given a credit builder card by Capital One, it was an Ocean card with a very low limit. I used it and paid it off, in full, every month for more than six months. From there I went on to get a 'proper' Capital One card and now I have four cards, none of them with Capital One. Two are frozen at the moment but I do use them in rotation. And one I'm using now is a 0% interest purchase card, on which I am paying the minimum each month and putting as much as I can into my savings to cover the full payment at the end of the 0% purchase offer time. 

If I were looking to take out a loan soon, I'd be paying the balance off in full but I'm taking advantage of the fact that I don't have to do that for twelve months but I'm putting money into a savings account where it's accumulating interest. I have enough in there to cover the credit card bill now but as I said, choose not to as I'm not paying any interest.

If you start spending with a credit card but you cannot afford to pay the balance off each month, then you could be heading towards disaster, as I did. Paying a £150 balance in two parts will mean you're paying interest, no matter how small. And that now really annoys me. In the past, I just didn't care. But after financial disaster, I care very much.

It doesn't matter that you are on a very low income, so was I and after the DRO experience I learned how to budget. I was helped by StepChange, one of the free and confidential debt help agencies. You could call them and have a chat - put plans into action before the horse bolts, as it were. There's also National Debtline and Citizens Advice. I know you will say you're not at that point yet but I know that it's so easy to slide into debt. They are happy to help and advise without judgement but with great knowledge.

I do hope that some of this helps. As I said, it's my own experience, I've lived it. But I have also learned from it. 

Good luck. 

Froggy8

Again many thanks for the great advice  I am determined to sort credit report out.

Apologies, just another question regarding bank transfer, when I get a statement asking me to pay the minimum, do I immediately do the bank transfer?

Froggy8

Also do you add your debit card to your credit card account?

eskbanker

Froggy8 said:

Again many thanks for the great advice  I am determined to sort credit report out.

Apologies, just another question regarding bank transfer, when I get a statement asking me to pay the minimum, do I immediately do the bank transfer?

No need to do so immediately, just take heed of the statement due date (typically 2-3 weeks later) and make sure payment reaches them by then, the 'how to pay' section of their website will explain.

Froggy8 said:

Also do you add your debit card to your credit card account?

They'll probably accept payment by debit card, I haven't checked to see if that involves 'adding' it as such but again, the payment section of the website (and probably statements too) will explain your options....

Froggy8

Thank you, will take everything what you guys have said on board.

born_again

Froggy8 said:

You saying it will hurt my report if I pay it all in 2 months?

No it won't, so long as you are paying each month.
It is payment history that counts.

But as above, look to clear each month.

I was planning on if I only did, let's say, 50 pound then I will pay it all off in 1 month but if its something like 150 pound then I could pay 75 in 2 months to pay it off.

So that is fine, so long as you do not spend again for 2 months.
As you £150 is going to incur interest from the day the transaction debits, till the day it is fully paid off, you will then have a bit of trailing interest from statement date, till you pay off.