Credit cards can help you manage your cash flow, build your credit rating and even earn rewards points. But if you don’t use them correctly, you can also get into debt and hurt your credit rating.
Knowing what’s true and what’s not so true is a great place to start when thinking about how to best use a credit card. Here are some common credit card myths that are worth looking a little closer at.
You’re in control of how much you spend and how you manage your repayments. If you pay off the full amount you owe every month, you won’t get into debt or pay interest charges.
However, if you’re worried that the temptation to spend may be too much, it’s worth considering whether a credit card is right for you. Why do you want the credit card and what will you use it for?
If you decide to take out a credit card, setting yourself clear rules can help you avoid spending more than you’re comfortable with. You can also look at setting your credit limit at a smaller amount to start, so you can reduce the chance of getting into any trouble.
If you aren't going to pay off the full amount each month, then the annual percentage rate (APR) is important as you'll be paying interest on the debt. But if you're going to pay off the full amount each month, an APR may not be as important. If this is the case, you want to weigh up the cost of a higher APR against other benefits such as air miles or rewards.
While this is technically true, it’s really important to pay your balance in full whenever possible. Making the minimum repayment on your credit card can mean it takes you longer to clear a credit card debt, and you could pay a significant amount in interest. You should always try to pay your balance in full or, if that’s not possible, try to repay as much as you can.
Please note, if you hold a credit card with HSBC, any refunds you receive on your account won’t count towards your minimum payment amount. You must still pay the full minimum payment, unless the refund reduces your balance to an amount which is less than your minimum payment. In that case, you’ll only have to pay the remaining balance.
While your credit rating looks at your borrowing history and financial activity over a period of time, even missing one payment on your credit card can negatively impact your credit rating. It’s important to stay on top of things, otherwise you may find that you’re limited in what you can borrow in the future. Setting up a Direct Debit can prevent you from forgetting to make your repayments.
This isn't necessarily true. Your credit rating is determined by the different types of credit you have (which could include a student loan, a mortgage and credit cards), as well as other things such as the length of your credit history, how many times you've applied for credit recently and the amount of debt you have.
Explore more: How many credit cards should you have?