How to manage credit cards (wisely)

Perhaps you're moving house and need a little extra money to cover the expenses. Or maybe you're hoping to get a mortgage but are worried about your thin credit file. Either way, sensible credit card use can help you move forward financially and get your money in order. To manage your credit cards efficiently, it's essential to:

• Compare a range of credit cards before choosing one — look for affordable interest rates.
• Only ever borrow what you can afford to repay — make sure you factor the annual percentage rate (APR) into your calculations.
• Only use your credit card for items or expenses you have budgeted for — avoid impulse buys.
• Stay within your credit limit — going over your limit will result in fees.
• Make your credit card payments on time — late or missed payments can result in charges and damage your credit score.
• Keep track of your expenses — hold onto receipts, so you know what you've spent.
• Avoid cash withdrawals — withdrawal fees from cash machines can drive up the amount you need to repay.

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How to build your credit score

A well-managed credit card can help you build up your credit score by showing lenders that you can borrow and repay effectively. This is particularly beneficial if you want to take out a bank loan or get a mortgage at some point.

Following the above points will help you improve your credit rating. However, it's particularly key to emphasise the importance of ensuring you never miss your credit card payments, as this can damage your rating.

A credit card can be a great way to build your score if you have a thin credit file. A thin credit file is when there's not enough history to prove your financial dependability. Recent graduates or immigrants often find they have a thin credit file because they haven't had the opportunity to borrow and repay effectively. A thin credit file is different from a bad credit score. Essentially, you have a blank canvas and can work to build upon it positively — and this is where wise credit card use can be beneficial.

Whether it's your first credit card or one of many, try to pay more than the minimum repayment each month if you can. Not only will this help you clear the debt more quickly, reducing interest in the long run, but it will boost your credit score by helping future lenders see that you can manage your money responsibly.

Outside of credit card payments, make sure you're on the electoral roll (this is especially helpful if you've just moved to the UK and want to get a loan), and always pay your rent and bills on time.

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Balance transfers: how do they work?

A balance transfer is the act of moving outstanding debt on one credit card to another card (usually a new one). In a similar way to debt consolidation, this allows you to transfer your debt to a card with a lower interest rate, therefore reducing the amount you pay in the long run. Some cards offer 0% interest periods which can be enticing.

There are pros and cons to balance transfers, and it's essential to weigh up whether or not it's the right option for you before applying for one.

Firstly, applying for a new credit card to transfer your balance to will mean you need to go through a hard credit check. Hard inquiries knock points off your credit score and can stay on your report for up to two years.

However, you may find that, longer-term, a balance transfer helps you manage your repayments more effectively, clearing your debt and boosting your credit score in the process.

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How to manage credit card debt

If you find yourself struggling with credit card debt, don't panic — there are ways you can reduce the amount you owe and limit damage to your credit rating.

Firstly, budgeting is key to avoiding the dreaded debt spiral. Set yourself a repayment plan, and don't stray away from it if possible. As with the above points, it's vital to make your debt repayments on time to avoid the snowball effect of late or missed payment fees.

Do you have multiple credit cards? It's important to prioritise paying off cards with higher interest rates first. If a balance transfer sounds like an appropriate option for you, then this can help you reduce the amount of interest you owe. Determine out how much you need to pay each credit card lender every month and work this into your budget. You may also be able to speak to your creditors and arrange a payment holiday for your non-priority debts.

You may want to consider debt consolidation. By taking out a low-interest loan, you can pay off your higher-interest credit cards and clear your debt more quickly. If you have several different credit cards, debt consolidation can help simplify your finances as you can just focus on paying back one sum each month. However, it may seem like a bit of a catch-22 situation — how do you get an affordable loan if you have poor credit? Fortunately, some lenders and loan apps, including Abound, don't just rely on your credit score. In fact, we use Open Banking to assess your affordability. This system involves a soft credit check but focuses on your transaction data rather than your credit score.

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Low-interest loans from Abound

Does debt consolidation sound like a suitable option for managing your credit card repayments?

At Abound, we offer low-interest loans of between £1,000 and £10,000. And, because we use Open Banking rather than focusing solely on your credit score, a Abound loan could be a helpful way to get on top of your credit card finances.

If this seems like an appropriate choice for you, why not apply for an affordable loan today?

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