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Learn > Credit Cards
What is a credit card?
Buy stuff one month, pay for it the next.
It’s really that simple. So let’s find out more.
What is the point?
Credit Cards are really valuable tools.
+ You put payments on the card throughout the month and then you pay off the total of everything at the end.
+ They help your credit score. This will help you when applying for a mortgage.
+ It shows that you pay back anything that you borrow, as it is basically borrowing.
+ If you buy something online and it doesn’t turn up, your credit card company can refund you as payments are protected.
But you heard they’re bad?
If you know how to use them, they aren’t.
People decide to put something they can’t afford on a card. When it comes to paying it back, they can’t. This is where problems arise.
If you can’t pay it back, you start getting charged interest at a high rate.
Example
Say, you spend £1,500 on a holiday.
You put it on a card that has a rate of 39.9% APR (this means per year).
But say you saw the minimum payment was £5 and you thought ‘I’ll just pay £75 a month’ - only 20 months.
Well - because it isn’t your money you would get slapped with mounting interest fees, in this case £747.
Meaning it would take 30 months to pay off the balance.
Pay £500 a month and you would only get £50 of interest charged.
If you just paid the whole balance - no interest.
If you ever get a credit card - ALWAYS PAY IT OFF IN FULL.
What if you can’t pay it off in full?
You should never spend money on a credit card that you can’t afford. However, things do happen.
There are such things as ‘balance transfer’ cards. These could be really useful if you are in this situation.
These are cards where you can pay a low 2-3% fee to transfer the whole balance to a new card where you won’t pay interest as you slowly pay it off. This can save you £1,000s.
What’s the deal?
Got a high balance?
You can transfer your balance to a ‘balance transfer card’ which will often charge you a small fee for transferring the balance. But it will then give you 0% interest for a year!
This could save you £1,000s
Just want a card?
There are some fantastic cards on the market that just allow you to build your credit score and reap the benefits of a having a credit card. Eg - CapitalOne
Used well, this could boost your credit score
Interested in Rewards?
If you are planning any big purchases any time soon that can be paid by credit card you can get rewarded to do so from just having one of these cards.
This could be in the form of air miles, cashback or hotel points which you can spend as you please!
This could earn you £100s
Unfortunately, we are unable to recommend credit facilities, but there are several card comparison sites out there which you can filter by searching for any of the above. Hopefully soon we will be able to list these out in full for you!
If you have any questions in the meantime please do not hesitate to drop us an email
hello@thebankengine.com