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 Credit cards, balance transfers, credit scores ...how does it all work?
Benefits, fee's & pit falls
There are few ways you can plan on using a credit card. Some can be beneficial and some ways should be definitely avoided! Sit down, look at your debts and see if a credit card is the best way to consolidate and move forward. Credit cards can often be a more attractive alternative to personal loans. Low life time balance transfer rates can often be lower then personal loan APRs and if you wish you can pay off a little extra from time to time without any charges. A good example of a low life time balance transfer rate is the Capital One Platinum Card. If you can divide your debt into affordable monthly amounts and calculate to pay your debt in full, then a good example is the Virgin Money Credit Card offering a full 16 months interest free on balance transfers.
The best way to use your credit card of course (and certainly for purchases outside promotional periods) is to pay off the outstanding balance in full each month. You can then take advantage of the interest-free period which varies from card to card and can be up to 60 days... meaning that if you make a purchase at the beginning of your statement period you could effectively be benefiting from up to two months interest free credit. Take a look at the NatWest Credit Card as a good example.
An additional benefit is that your purchases maybe insured by your credit card company and covered against damage during delivery. Some credit cards companies offer further insurances which you can find listed along side credit card features.
'Negative Payment Hierarchy'
If you choose to only meet your minimum payment every month you can be in for an expensive ride. Unlike personal loans the minimum payment drops each month, while this may look attractive it means it will take you longer to pay off the balance and the interest accumulating has the credit card companies rubbing their hands. More so if you use the same card for different types of transactions...
If you have, for example, a 12 month interest free promotional rate on balance transfers, then after transferring a balance you make a purchase and your credit card rate for purchases is 16.9%. You'll be paying for the debt that has the highest interest rate first (in this case the purchase), this is known as 'Negative Payment Hierarchy'. More over, if you were then to make a cash advance at (for example 21.9%) this jumps to the front of the queue making the total debt on the card a very expensive one to pay back. This effectively wipes out your balance transfer interest free period. Unless of course you can afford to pay a large amount of the debt within your next statement period. In short, avoid getting yourself in a muddle. If you need credit for more than one reason, use more than one credit card and choose the most appropriate for each.
Repair poor credit
The first thing to do if you think (or know) you have a bad credit rating, is to actually view what companies see when deciding whether or not to approve your application for credit. You'll be pleased to hear that this first port of call if free! Simply get your Free Experian 30 Day Credit Report here You'll then be able to see everything from your current available credit, your total debt, accounts, search dates companies have made when viewing your credit file and your actual credit score. Although it makes good sense to keep the access to your credit report after the 30 day trial (so you can see how the steps you take positively affects your rating), you can cancel the subscription before the end of the trial incurring no cost.
You may want to consider the Capital One Classic Card it's designed for people with poor credit. Although it has a high APR, you can demonstrate that you are now a trustworthy borrower. Just make a few small purchases using the card and make sure you pay the balance in full every month, this will go along way in your road to recovery. Other steps you can take to repair your credit rating are as follows:
- Make sure you're enrolled on the electoral register.
- Make sure you have a Contract Mobile Phone as appose to to pay-as-you go, just make sure you pay the bill on time each month.
- Set-up direct debits for all your bills.
- Close down old credit card accounts that are just sat around with no balances on them. The amount of available credit you have is considered by lenders and can go against you when applying for new credit.
Conclusion
So there is numerous ways to approach lending with credit cards. Plan your route, first up understand your credit report and rating. Take the appropriate steps to repair your credit if necessary. Make sure you have direct debits set-up for bills and are on the electoral roll. Choose the best card for the type of balance you are dealing with. Keep different type of debts on separate cards so to avoid 'Negative Payment Hierarchy'. Try to avoid paying the minimum balance each month. Follow these simple steps and you can enjoy the benefits that credit cards can offer, rater than being the victim of poor spending habits, bad credit and spiralling debt.
If you feel you need further help with your debts you can contact the Citizen's Advice Bureau
We hope you find this advice helpful and bag your perfect credit card deal here at Shop4offers.co.uk -
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Credit Cards
