A credit card is a privilege not a right. It doesn’t give you access to free money and should be used responsibly and with discipline. If you have had financial problems in the past, it’s likely that your credit rating will have been impaired and you have had problems applying for credit. But there are now a number of banks and other lenders who offer credit cards to people with poor credit records.
While you should never use any credit card for all of your spending, if you are trying to rebuild your credit record, there are some purchases that it makes sense to put on a card designed for people with poor credit. But you should only go down this route if you plan to regularly pay off the balance in full every month. Not only will this mean that you’ll be able to continue to use the card month after month but you’ll also be rebuilding your credit record by demonstrating that you can use a card responsibly all the time.
But if you can only ever pay off a fraction of the outstanding balance from month to month, then you should be concentrating on trying to get your debts reduced rather than using a card for regular purchases.
Why not just use my debit card?
A credit card allows you to purchase goods and services in the same way that you do with a debit card but with one major difference: you don’t have to have the money in your bank account first.
The card issuer will allow you somewhere between 45 and 56 days to repay the balance of the card – in instalments if you wish – and will add interest to any money that remains outstanding. When you repay the balance in full, there is no further interest to add.
If you are confident that you can repay what you spend each month in full then you will minimise your interest charges. If you leave some balance outstanding, then you will have to pay more interest which will mount over time.
While a debit card allows you to pay for goods and services instantly with the money held in your current account, a credit card gives you access to other benefits and, if used responsibly, will help you to rebuild your credit rating quickly.
With a credit card, you’ll get protection on purchases worth between £100 and £30,000. This is much greater protection than you would get on a debit card. Should you buy a TV from a retailer which then stops working and you discover that the shop has gone out of business, you will be able to reclaim the money back from the credit card provider.
Setting a household budget
As well as giving you purchase protection, a credit card also allows you flexibility to allocate a portion of your monthly income to spend on your day-to-day shopping and what to leave on the balance to pay back later. If you are able to set a household shopping budget and stick to it, you should use your credit card to make these purchases and then pay back the money borrowed as soon as you get your bill to avoid interest charges.
Spending on your card in this way will also maximise other benefits include the reward points offered by some card issuers. These points can be exchanged for flights, hotel rooms, car hire and a range of other offers.
Other purchases you should use a credit card for:
Season tickets – If you have to travel to work by train, tube or bus then buying an annual or six-month season ticket could cut the overall cost substantially compared with paying weekly or monthly.
Buying your season ticket on a credit card will mean you benefit from a substantial discount on your travel while allowing you to hold on to the money in your bank account for longer.
Holidays – If you use a card to pay for your holidays including accommodation and flights, your travel will then be protected should the travel agent, airline or hotel go out of business and your card issuer will refund the money to your account.
Christmas and birthday presents – Presents can be expensive, particularly at Christmas when you have to think of the whole family. Paying for presents on your credit card means that your purchases will be protected should anything go wrong with them after they’ve been opened and you’ll get extra time to pay for them after your credit card bill arrives.
- Does a balance transfer credit card make sense?
- Our guide to credit cards
- How to protect yourself from card fraud