The chances are you’ve come across credit cards before. But you may be wondering if they’re any good. If you’ve spent many hours umming and ahhing over whether a credit card could be right for you – then read on.
What is a credit card?
Simply put, credit cards extend a line of credit to an individual from an institution. This means you can borrow money for purchases and pay it back in line with the credit card guidelines. Because they’re so handy, it’s easy to understand why there are more than 60 million in issue across the UK.
But they aren’t all the same. In fact, there are a huge number of credit cards on the market, each with different purposes. Therefore, this guide aims to help you decide on whether a credit card could be right for you.
Advantages of a credit card
- Credit rating
One of the biggest advantages of credit cards is that they can build up your credit score if you use them responsibly. By building your credit score, you stand more of a chance when it comes to being accepted for big-ticket investments such as a loan or a mortgage.
Credit cards are more secure than cash as you can freeze your card and keep a close eye on your spending online to identify any fraudulent transactions. In fact, UK cardholders spend up to £16.5 billion on credit cards annually partly due to this extra layer of security.
- Added flexibility
Credit cards also offer more options when it comes to payments. For example, responsible credit card usage can help you make purchases that may otherwise be out of reach and pay them off in a way that suits you. So, if your car MOT is due before you get paid, a credit card offers another way to pay.
The downsides of credit cards
Although credit cards can be a good way to manage your finances, they do have some downfalls.
- They can be expensive
Firstly, credit cards can end up costing you more in the long run. For example, you may have to pay fees on top of interest. This means you may end up paying back substantially more than what you borrowed.
- They can negatively impact credit scores
Using a credit card irresponsibly can do more harm than good. It can damage your credit history if you cannot make repayments as it shows you’re financially stretched. You will then be seen as a risk to lenders.
You may also be subject to hidden charges such as having to pay to withdraw from an ATM or a monthly fee that is paid to the bank.
The bottom line is that, used correctly, credit cards can offer you more financial freedom and easier, more manageable ways to pay. However, to reap the benefits you’ll need to spend responsibly and be aware of the implications of not doing so. Yet if you can manage it right, they can be a great way to take control of your finances.
*Do connect with me on Instagram at @KiranSinghUK for behind the scenes, daily updates, inspiration and more!