Credit Cards

Managing your credit card account

Credit cards can be a handy way to borrow if you use them in the right way – but get it wrong and you could find that your debts spiral out of control. Follow these simple tips to manage your card correctly.

Keep your PIN secure

  • Don’t store your PIN with your card, or give it to anyone else. If you do, and someone takes the card and uses it, the bank won’t pay you back what’s stolen – they would in most cases if it wasn’t your fault.
  • Change your PIN to something you’ll remember. You can do this at most cash machines. Pick something you can remember, but not something like your date of birth that others could guess.

Check your bill

  • Open your bill, sit down with it, and check through it. Query anything you don’t recognise. Keep credit card receipts so you can match things up.
  • If you get your statement online, be organised about when you log in to check it. Do it on a particular day – say a week before the payment’s due.

Plan to pay off in full each month

If you don’t completely clear your balance, you will usually be charged interest on everything on your card (unless it’s during a 0% introductory period) – not just the bit you haven’t repaid.

For example, if you ran up a credit card bill of £100 during the month and paid off £99 at the end you could be charged interest on the whole £100.

This depends on your card company – check the terms and conditions carefully.

  • Debts can spiral out of control. Because you pay interest when you don’t clear your card each month, debts can mount up and take a long time to pay off.
  • Interest charges and the way they are calculated vary considerably.

Avoid the late payment trap

If you don’t pay your bill on time, there could be some serious consequences.

  • Fees and charges. You’ll be charged a late payment fee (as much as £12), plus interest on the whole amount you owe.
  • Increased interest rates. If you’re a repeat offender your card provider might increase your rate, reduce your credit limit or cancel your card.
  • Problems getting other credit. Paying late can damage your credit rating, making it harder to get other credit, mortgages, other cards and even phone contracts.

However, there are ways to avoid paying late:

  • Pay by Direct Debit. The best way to avoid the late payment trap is have the money go out of your bank account automatically. Ideally, set up a Direct Debit to pay off the full amount every month.
  • Pay with time to spare. Although you can pay your credit card bill by phone or online from your bank the same day, it can take a few days to process your payment. So don’t leave it to the last minute.

Avoid the minimum payment trap

The minimum amount you need to repay on your card each month is often quite small, but paying just this amount will cost you a lot in the long run.

You could be making repayments for years and end up paying more in interest than the original debt.

Let’s take an example – a debt of £1,000 on a credit card with 16.9% APR.

The minimum repayment for this card is 2% of the balance, or £5 – whichever is greater.

The first payment will be £20, but this figure will fall as you repay the balance.

The table shows how much you could save if you repay the same amount every month.