To ask for some help with credit cards?

[Devina89]

So I’ve got a visa debit card. I’m with HSBC…
I never had a credit card and I am ashamed to admit that I don’t fully understand how they work.

could someone please explain on how credit cards work? 😳

I believe that it would be good for me to build up a good credit score but I’m totally lost on how and where to start…

Have you looked on moneysavingexpert?
Dd used their page which lets you know which cards you're likely to be accepted for.
She thought she would have to use a credit-builder type card but she was accepted for one with a high st bank.
The interest rate is fairly high so she pays it off every month.

You pay on your credit card and its essentially paid by the bank. You then owe the bank the money, this is your credit card balance. Each month they charge you interest on that balance if you don't pay it off in full. There will always be a minimum payment (£5 usually) so even on a low balance you need to pay monthly otherwise they charge you (£20-25 Ish). There is a credit limit so you can't get the balance above that but they'll put the limit up over time if you are a good lender

@SuperLoudPoppingAction

thanks, I will have a look but first I could really do with someone explain on how the credit cards work. I really don’t know😞

I need someone to break it down for me… sorry!

Look on a comparison site for the best deal. Try to get 0% interest for as long as possible. And pay it off every month to build your score. Even if you just use it to buy fuel and then pay it off, it will help you. Don't just ask your bank, it's probably not the best deal.

If I don't pay my credit card off in full every month, does that effect my credit score?

I always pay a little more than the minimum amount.

It is a way of borrowing money.
You can borrow up to your limit.
If you don't pay it back then you will be charged interest.
The interest would then build up each month.
You have to make at least a 'minimum payment' which will be something like £10 or 2% of the balance.

Is there really nothing explaining it on moneysavingexpert? That surprises me.

Thanks @SleepingStandingUp
so as long as I pay it off on time, I don’t get charged any extras?

@PurassicJark why does it matter what the interest rates are? As long as I pay the balance off on time it’s all good isn’t it?

www.moneysavingexpert.com/credit-cards/how-do-credit-cards-work/

This might be useful.

Yes, as with my dd, if you're looking to build credit and you pay it off each month, the interest rate doesn't matter.

If your boiler breaks and you have to then borrow more than you can pay back in a month, it matters at that point.

Just Google 'what is a credit card'.
There are zillions of results.

www.citizensadvice.org.uk/debt-and-money/borrowing-money/credit-cards/how-credit-cards-work/
www.moneysupermarket.com/credit-cards/what-is-a-credit-card/
www.experian.com/blogs/ask-experian/what-is-a-credit-card/

There is!

www.moneysavingexpert.com/credit-cards/how-do-credit-cards-work/

I don’t have one either op. I’ve never seen the need for one.
I have an ok credit score and am scared of getting into debt.

How they work: you use it to pay for things. You get a statement each month and either clear the whole balance or pay a sum against the balance by deadline set by the card-issuer. The minimum payment is a percentage of the balance (about 5% I think. Don’t remember, I haven’t had a credit-card in decades). What’s outstanding is charged at a very eye-watering interest-rate, much higher than an overdraft. For some it can be tempting to continue to spend and not ever clear the balance. If you’re solvent you don’t need one. Some people hold onto one in case there’s an unexpected bill which they could settle over a couple of months. If you’re solvent and have a modest amount of savings you don’t need one

If you pay off in full every month you pay absolutely nothing extra (as long as your card is fee free), get various benefits like extra consumer protection and maybe cashback or airmiles. This builds your credit rating.

If you don't pay off in full then the amount you don't pay off gets interest charged on the outstanding debt, usually at very high rates. It's easy to get caught out by this.

There are some things you can't do with a credit card without being charged absolutely eye watering amounts of interest - one is withdraw cash from a cash machine.

I bet you earn a decent amount? In which case of course you don't see the need!

For the rest of us, when an appliance breaks or a sudden bill appears and we don't have the spare money to pay for it, credit cards are a life saver!

This! I use my credit card for purchases when I need to delay paying for them. I don’t get paid until Thursday so I’ll need to buy groceries on my credit card this week until then. I can pay that off on Thursday when I get paid, or I can wait a few weeks for the statement to come. I then have a month to pay the balance before I get charged interest.
It helps for budgeting purposes too, as I can split paying for something like a printer or appliance over a couple of pay days. It especially helps over Christmas when I have to pay for that, my car insurance and my course all at once.

I pay for holidays on a credit card, even if I can afford the whole amount. (I pay it off straight away) I think there are more protections with stuff bought with a credit card than a debit card.

Say you get a credit card on the first of January with a credit limit of £2,000.

You can use it exactly like you'd use your debit card but instead of the money coming from your bank account it's paid by the credit card company and racked up as a debt to you. The card company charges the shops a small sum for administration and this is part of how they make their profit.

On 31st January the credit card company sends you a bill for all the spending you've done on it. If you repay the full amount by 15th February then you don't pay any interest. If you don't repay in full then you pay interest (normally around 35% per year for a standard credit card I think?).

Advantages of having a credit card:

You have additional consumer protections if the company you're buying from lets you down or goes bust taking your deposit with it.

There's an additional layer of protection between fraudsters and your bank account.

If anything goes wrong with your bank account (technical issues, fraud) you have an alternative means of payment immediately available.

Some credit cards, (Halifax Clarity leaps to mind) are extremely effective ways of spending overseas because they don't charge extra foreign currency transaction fees.

Some credit cards give you a small percentage of cash/vouchers back on your spending so if you always pay them off in full you make a small profit.

If you do need more money than you have available in your bank account in an emergency, eg for a car repair or a broken washing machine, it's an instantly available form of credit. If you know you're not going to be able to repay it when the bill becomes due you can potentially use it and then use the time until the bill becomes payable to take out cheaper credit to repay the bill.

Disadvantages of credit cards

Depending on your personality you may find their ease of access tempts you into unnecessary serious debt.

They're not the cheapest form of credit: they're cheaper than payday loans but more expensive than a bank loan.

They will have a specific time frame to pay off a balance. So mine is 56 days. If I don't pay the balance in full within 56 days I get charged 29% interest on it. I have a direct debit set up that pays mine off in full every month.

The lesson here is live within your means. Never spend more on it than you can afford to pay off in full every month.

This demonstrates responsible use of credit and your score will go up.

You buy something in a shop using a card payment.

Debit card - the money comes out of your bank account immediately.

Credit card - the money you spent is added to a bill you will receive once a month. If you pay the bill in full, then you pay no interest. If you don’t pay the bill, or only pay off some of it, you will be charged extra.

I think of mine as an emergency loan facility - if I suddenly need to buy a new washing machine or pay a vet's bill, I know I can put it on my credit card.

Your credit rating in itself is affected by a lot more than credit cards, for example if you pay your bills (gas, electricity, phone, etc.) on time and if you are on the electoral roll.

I was looking at my credit score recently and it seems to depend on how much of the available limit you are using. So if your credit limit is £4000 and you have a £3800 balance on it long term, that will affect your credit score a lot more negatively than if you have a £4000 limit and a £1000 balance on it.

We pay our credit card off every month, but it does give you extra protection on goods over £100 so always worth putting bigger items on it.
Credit cards are safer to use on internet.
Also my card has no transaction fees if used abroad

If you want to build your credit score:

• Get a credit card
• Only use up to 30% of your total limit per month, so if your limit is £2000 then only spend £600 per month.
• Pay it off in full every month. Set a reminder on your phone to pay it off at the end of the month.

www.experian.co.uk/consumer/guides/improve-credit-score.html

Thanks so much everyone, this is so helpful.

I’m pretty good with money and usually have around 15k on my bank account that I can use for emergencies if needed.

I never felt like that I needed a credit card as my debit card works just fine.

However, I believe that it’s good to build up a good credit score for mortgages and the extra protection on purchases etc

i think I’m going to apply for one…

Your debit card will just take money from your bank account when you use it.

You apply for credit card. The company will look at any previous credit history, your income and out goings via a bank statement and decide then what your credit limit will be. Your credit limit is what your allowed to spend on the card. You may get a low limit at the start so the credit card company can see it use and your payment history before allowing you a higher limit.

When you spend on the card it appears on your credit card statement. You can make a minimum payment which is generally a percentage of the balance, pay more than this or pay the bill off in full. If you pay the bill off in full you don't pay interest once you have just made purchases on the card ie stuff from Amazon, a meal out ect.

If you withdraw cash on your card you start to accure interest immediately on this.

You get a credit card statement and it asks you to make a minimum payment of X amount by a certain date. So can you decide after making the minimum payment how much you want to pay off that month. Until the balance is paid off you will be charged interest on what you spend on the card. That applies to all purchases on the card once you don't clear the balance in full.