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How To Efficiently Use Your Credit Card

Written by Alex Swindells on . Posted in Credit Score.

A credit card can help you effectively manage your finances, improve your lifestyle, and expand your financial options. For example, a credit card can help increase your credit rating which is reviewed by most lenders. 

But how can you efficiently and effectively use your credit card and avoid getting yourself into overwhelming credit card debt? First, let’s explain what a credit card is.

Credit cards are a great way to make large purchases that you otherwise would not have been able to do. As you may already know, with a credit card you will have a credit limit (an amount that is available for you to spend), which, if you start to use your credit, you will be required to make monthly repayments as well as pay any interest gained. Some credit cards may have a 0% interest rate for a limited time; however, ensure that you know and understand your interest rate before you start using your credit card.

How To Use A Credit Card

As previously mentioned, if used sensibly, a credit card can help to improve your finances and, overall, your lifestyle. However, it can be easy to use your credit card in the wrong way, getting into debt that is unmanageable. 

So, below are a few tips to help you use your credit card sensibly and to stay on top of your debt.

1) Spread The Cost

A credit card is good to have when an unplanned event occurs, resulting in an extra expense. The credit you have available can be seen as your credit for emergencies.

For example, if your car suddenly breaks down, but you don’t have the money to fix it, then this is when having a credit card is handy. You can pay to have your car fixed without affecting the money you need to live. Additionally, you will be able to spread the cost out.

Being able to make a big purchase and spreading the cost over several months is particularly useful if your credit card has a 0% interest rate (the terms and conditions of your credit card, including interest rate details, should be provided when you apply for your credit card).

Additionally, it can work out cheaper to use your credit card for big leisure purchases, such as buying a new TV. Rather than paying for the TV in monthly instalments, which usually comes with a high-interest rate, you can pay for it in full by using your credit card.

2)  Pay The Balance

Only use your credit card when you know you will be able to pay off the balance. If you are considering using your credit card to pay for a large purchase, consider whether you will be able to afford to repay it through monthly instalments. 

If you do not think you will be able to repay what you have borrowed over a reasonable amount of time and without it putting you further into unmanageable debt, then you should not use your credit card to make the purchase.
Remember, a credit card is good to have in an emergency or to ease your financial situation. When you start making unnecessary purchases that you cannot afford, then that is when having a credit card can lead to unmanageable debt and cause your credit rating to fall.

3) Limit Credit Card Usage During A Mortgage Application

saving money for a mortgage

When applying for a mortgage, it is advisable not to overuse your credit card, particularly during the months leading up to you searching for and comparing the best interest rates that you may be offered. 

This is because you need to demonstrate to lenders that you have control over your finances; that you can manage your earnings and expenditures sensibly and without the use of continually using credit. The higher your debt, the harder it will be to secure a mortgage offer from a lender. 

When considering whether you can actually afford a mortgage, lenders will look at your credit report, which will include details of your credit card limit and how much you have used. The more credit that you have available, the better it will look to lenders because they will see that you are not having to rely on this credit to keep on top of your bills.

Your credit report will also detail any late payments you have made, which we look further into in the next tip.

4) Avoid Late Payments

If you fail to pay your credit card bill on time, then not only could this show up on your credit report and lower your credit rating, but you could also be charged a late fee, putting you further into debt. 

Additionally, you may be asked by the credit card company to pay back the amount you owe in full, or they could even try to take you to court. As a result, your credit report will be negatively affected, making it more difficult to gain other types of credit. 

If you know that you may struggle to pay your credit card bill on time in the future, then it could be worth getting in touch with your credit card company because they may be able to reduce your payments or pause them temporarily.

5) Avoid The Minimum Payment

When using your credit card, try to make more than your minimum payment each month. If you only pay the minimum amount each month, then it could take years for you to repay what you owe, particularly if your credit card has a high-interest rate.

Ideally, try to pay off a large chunk each month via direct debit or, if you can, pay the full amount of what you owe each month, increasing the available credit that you have, which will also look good on your credit report.

6) Do Not Make Cash Withdrawals

using a credit card to withdraw cash

Do not use your credit card to make cash withdrawals because your credit card company will charge an extra fee, which will increase the amount that you owe that month. Then, if you are unable to repay what you owe, again, it will impact your credit score.

If you do need to withdraw cash, consider applying for a money transfer card, but be aware that there will still be an extra fee involved.

We hope that these tips will help you to efficiently use your credit card, easing your financial situation instead of putting a strain on it.

However, if you are struggling with credit card debt and are unable to repay what you owe, then an alternative debt solution may be worth considering, such as an Individual Voluntary Arrangement (IVA).
With this debt solution there will be IVA Protection, so to find out more, get in touch with Swift Debt Help.

Request a Debt Assessment

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.

Family Keeping Records of Expenses

What Are The Differences Between Good And Bad Debt?

Written by Alex Swindells on . Posted in Credit Score, Debt help.

Not all debt is considered bad debt. There is such a thing as good debt, which can benefit your financial position.

For example, good debt can help to improve your credit score, making it easier to apply for credit and to be approved for loans at better interest rates. In the long run, this will have positive effects on your life. 

Bad debt, however, will financially drain you, lower your credit score and make it harder for you to better your financial position or apply for loans, such as a mortgage. 

If you are struggling with bad debt, then you may want to consider applying for an IVA (Individual Voluntary Arrangement). An IVA is a legally binding agreement that can be arranged by an Insolvency Practitioner to help you affordably repay your creditors.

In the meantime, to help you understand the differences between good and bad debt, we’ve created a list of the types of debt that fall under each, along with ways to help you go about ensuring you obtain good debt.

What is Good Debt?

Businessman pushing credit score dial towards a good score

Good debt should allow you to improve your credit score. This will help to demonstrate to lenders that you can effectively manage your finances, which will open further credit options for you.

To obtain good debt, careful planning needs to be involved. For example, you need to have a budgeting plan in place to ensure you can afford repayments in the long term. 

Examples of good debt include:

  • Taking out a loan to open a business or grow an existing business. With a business plan and budgeting plan in place, borrowing money to help build a business can provide financial stability in the future if the business succeeds. 
  • For educational purposes, such as a student loan to attend university. Repayments will only need to be made once you’re earning a certain amount of money.
  • Applying for a low-interest credit builder card and sticking to the monthly repayments. Late or missed payments will affect your credit score negatively. 
  • Taking out a mortgage to enable you to buy a home. A mortgage is a type of secured loan since it is protected by an asset (in this case it is the house) that can be used as collateral should you not fail to make the repayments.

At a later date, you may decide to remortgage your home to allow you to get a better interest rate. This can be made possible if you have acquired a better credit score since applying for your first mortgage. 

What is Bad Debt?

Drawing of man chained to a debt wrecking ball

Bad debt usually occurs when you apply for unnecessary credit, such as a personal loan, and you haven’t planned how you’ll repay the lender. 

Debt can also accumulate, turning into bad debt if you don’t have the resources to make regular repayments.

Examples of bad debt include:

  • Applying for a car loan. An item that isn’t considered a necessity, such as a new car, quickly depreciates in value and usually has a high-interest rate.
  • An instalment payment plan, such as a phone payment plan. If managed well and monthly payments are made, then an instalment plan can improve your credit score. However, if you’ve opted for a phone that costs beyond your means, then this may affect your ability to stick to the payment plan and it will negatively impact your credit score. 
  • High-interest credit card. For example, credit cards that have a 20% APR or over will make your debts a lot more expensive and harder to repay. 
  • Payday loan. This debt can come with extremely high-interest rates. This type of loan is designed for short-term use, so if you aren’t able to repay the amount when you’re next paid, then the debt will accumulate quickly.

We hope this blog has provided you with a clearer understanding of the differences between good and bad debt.

If you are struggling with debt and would like to find out if you qualify for an IVA, then get in touch with Swift Debt Help, and we’d be happy to assist.  

Request a Debt Assessment

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.

Drawing of computer screen that shows 'credit score'

6 Ways To Improve Your Credit Score

Written by Alex Swindells on . Posted in Debt help.

Your credit score can dictate how much money you can borrow, what interest rates you will pay on loans, and even your job prospects in some cases. Unfortunately, if you find yourself in financial difficulty and you miss payments, your credit score will suffer.

If you are concerned about your credit score, here are 6 ways to improve it.

1. Make all outgoing payments on time

man looking at credit check document

One way to improve your credit score is to make all of your outgoing credit payments on time. If you can get into the habit of paying everything on time, it will show lenders that you are reliable and trustworthy.

If you are regularly missing payments, there are a few things you can do to make paying easier. Set up Direct Debits so that the payments are automatically taken from your account, and write a clear budget to make sure that you don’t miss payments.

2. Register on the electoral roll

Drawing of person putting polling card in ballot for election vote

One of the easiest ways to improve your credit score is to make sure you are registered on the electoral roll. Many people don’t realise that it can actually have a big impact on your credit score. If you are not registered, lenders have a harder time verifying your identity and this could lead to your application being declined.

Registering is easy. You can register online, and all you need to do is follow the on-screen instructions. If you are already registered, check that all of your details are correct and up-to-date. If not, update them as soon as possible.

It only takes a few minutes to register, so this is one of the easiest ways to improve your score.

3. Keep credit card debt below 30%

Young concentrated businesswoman in glasses and striped shirt working with papers at home

Your debt utilisation ratio is the amount of credit you are using compared to the amount of credit you have available.

It is best to keep your debt utilisation ratio below 30%. This means that if you have a credit card with a limit of £1000, you should not have debts of more than £300 on that card.

If your debt utilisation ratio is higher, it shows that you are reliant on borrowing to pay expenses or you are irresponsible with your credit cards. This could lead to your credit score being lowered.

It is a common misconception that not having a credit card at all is better for your credit score. Borrowing small amounts and paying them back on time will improve your score, but you must avoid borrowing too much. That’s why credit card debts of around 30% or lower are best for your credit score.

4. Develop your credit history

Woman using a credit card whilst on her laptop

If you don’t have much of a credit history, it can be difficult to get a loan or a mortgage. This is because lenders don’t have much to go on when they are assessing your application. This is a common issue for young people who have not borrowed money in the past.

There are a few things you can do to develop your credit history and improve your score. Many lenders offer credit cards specifically designed for building credit. Using these on a regular basis and paying the balance off in full will increase your score. 

5. Report mistakes on your credit report

Woman on phone to bank to report mistakes on credit report

If you have ever been refused credit, it’s important to check your credit report. Your credit score can be lowered if there are mistakes on your report. These errors can range from incorrect information about your address or date of birth to missed payments that you have already paid.

If you find an error on your credit report, it is important to report it straight away. You can do this by contacting the company to which the credit relates, and ask them to update their records. You could also contact the credit reference agencies (Experian, Equifax, and Callcredit) directly and raise a dispute, they will then contact the Lender on your behalf. The issue will be investigated and, if appropriate, will be rectified. Your score will then be adjusted accordingly.

6. Ensure your credit file has no fraudulent activity

fraudulent activity

If you suspect that someone has fraudulently opened a credit account in your name, it is important to take action straight away. This can be done by contacting the police and the credit reference agencies. You should also check your bank and credit card statements regularly for any fraudulent activity.

Fraudsters taking out credit in your name can seriously damage your score, so it must be rectified immediately. Just bear in mind that you may have to prove that you did not apply for the credit if it is not immediately obvious that you are a victim of fraud.

Struggling with your debts?

If you are looking to improve your credit score as a result of being declined for credit; or you are seeking credit in order to be able to meet your essential outgoings it may be the time to consider other debt repayment options. At Swift Debt Help we can talk to you about debt solutions based on your affordability. It is important to note that most debt restructuring options will be recorded on your credit file, and could have an impact on it. Call us on 0161 843 1516 to find out if another solution could be right for you.

Request a Debt Assessment

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.