This may sound like a really obvious question but when should you use your credit card, and when should you use a Debit card?
There are a few factors why you should use either a credit or debit card but it mostly comes down to how you manage your money.
Your credit card should be used for small and essential purchases such as a meal deal from Tesco, fuel for your car or the weekly shop.
However, ensure you pay it off each month by setting up a standing order or direct debit where possible. This is because if you don’t pay it off and you keep accumulating debt you will be charged interest on top of that debt by the credit card company.
On the other hand your debit card should be used for making larger purchases such as buying a new bike or car. This is because if you use your credit card to make these large purchases you will damage your credit utilisation rate.
Here is an example:
If you have a credit card limit of £2000 you don’t want to max out that entire credit limit of £2000 otherwise it will affect your credit utilisation rate.
A good rule of thumb is to never exceed more than 30% of your entire credit limit for example with the example above you don’t want to exceed a maximum of £600 on your credit card which has a credit limit of £2000.
So to recap, small everyday purchases on your credit card remembering to never exceed more than 30% of your maximum credit card limit.
And use your debit card for larger purchases such as laptops, cars or bicycles.
Ways to improve my credit utilisation rate?
If you have maxed out your credit card limit and want to improve your credit utilisation rate here are some things you can do:
- Pay off outstanding debt as soon as possible, to make more credit available on your card.
- Open up a new credit card will help to lower your credit utilisation rate.
- Speak to the credit card company to see if you can increase your credit card limit, which will lower your credit utilisation rate.
What are other benefits to using credit card?
Credit Card Purchase Protection
Let’s face it who has hit the “buy now” button and thought is this a fake website, or will my purchase arrive damaged?
The good news though is that making purchases on a credit card of between £100 and £30,000 gives you protection against faulty goods, or the company goes bust before your product has arrived.
It’s this type of protection which credit cards have over making purchases with a debit card.
For a more detailed list of benefits check out another post I have written which explains the 7 benefits of paying with a credit card.
Ways to improve your credit score?
Very simply a credit score is built up of a number of things about you which is represented in a 3 digit number that indicates how reliable you are at borrowing money and repaying money.
Check For Mistakes: Reviewing your credit report to ensure that there aren’t any error can be a good starting point. It may sound silly but a spelling mistake in your address or the house is missing can affect your credit score.
Ensure your address is up to date: If you decide to move make sure you update your new address on your credit report, and also ensure that you are registered to vote at your new home. Both these things can improve your credit credit score.
Ugo Tax 