5 Golden Rules Of Credit Cards

Credit cards are an incredibly valuable financial tool if used correctly and strategically. Not only will they do wonders for your credit score, but many come with additional perks, like cashback and free travel. But underneath the fancy perks they are all essentially the same and there is a right and a wrong way to use them.

These five golden rules will ensure you do the most positive damage to your credit score!

#1 Pay the full balance off every single month

Without fail. No excuses. 

You must pay your full balance off every single month. Using your credit card like a debit card is golden rule number one! You should not be charging purchases to the card if you don’t already have the cash to cover the purchase. Following this rule will ensure you don’t overspend and end up with a hefty bill that you can’t afford. 

TOP TIP: Use a Fintech like Monzo or Starling and set up a pot for each credit card you have. Every time you spend on the card, add the same amount to this pot. Then when time comes to pay, you will have the money ready to go and separate from your spendable balance.

#2 Pay on time not early

Now this is an important rule! Many will be tempted to clear the balance as soon as possible but this could actually negatively impact your score. You need to let the balance register – meaning wait to pay your bill until your statement has been produced. 

Now I know this can be hard to get your head around so let’s look at an example. 

Example:

Your statement runs from the 8^th of the March to the 7^th of April. Based on this rule, you should wait until at least the 8^th of the April to pay your balance off. 

This way the spending will register on your credit history as will the fact that you paid it off in full, increasing your credit score. 

#3 Never spend too much 

Credit utilisation is one of the factors considered when calculating your credit score. This is the percentage of your credit limit that you use. If this is too high, it could negatively impact your score. Now the right percentage is not definitively known but various experts suggest it should be around 8%. 

Example:

If you have a £500 credit limit than you should charge around £40 per month on the card. 

#4 Spend something

Just to add the complexity of using credit cards wisely, we learnt from rule 3 that spending too much is a bad thing but so is not spending enough. Spending £0 works the same as not having a credit card at all. Plus, if you go a few months without charging anything to your card the company may reduce your credit limit. This will in turn increase your utilisation percentage, negatively affecting your score. 

#5 Never cancel a card

This is such an important one!! Credit history plays a huge factor in calculating your score and the general consensus is the longer the better. If you were to cancel the card you have had the longest that would reduce the length of your credit history to the age of your second longest held card. 

Example:

You got your first credit card when you turned 18. You didn’t get a second one until you were 25. You are now 35 and no longer use the original card so decide to cancel it. By doing this you are reducing your credit history from 17 years to 10 years. 

So there you go, the five golden rules to using credit cards!