How to use credit to help you take control of your finances

What does the term ‘credit’ make you think of? Not living within your means? Debt? These concerns are certainly valid - taking out credit is a big decision and should be thought about carefully before you jump in. But what you may not know is that when it comes to credit, when used responsibly, there are ways to use it to your advantage. So if you do decide to take out credit, here’s how it could help you take control of your finances and our tips on what to be careful about.

Saving for anything you want is always going to be the best and cheapest way to buy. But sometimes things come up that we haven’t anticipated. Perhaps you know you can spare £50 a month but don’t quite have the savings yet for a new fridge.

Credit cards allow you to spread the cost of these purchases over a number of months. This can help you regulate your cash flows, and can make it easier to work the purchase into your budget. It means that if something unexpected comes up next month, you won’t be stuck because you bought a that fridge last month.

However, unless you have a 0% card, you’ll have to pay interest on any purchases so make sure you factor that in before you apply. Once you’ve been using and paying off credit for a while, you could be eligible for a better card, such as a 0% balance transfer card. This means you could transfer any outstanding debt onto a lower interest rate.

Top tips on using a credit card

• Understand the interest rates
• Pay your bills on time
• Keep your credit utilisation low
• Don't spend more than you can afford to pay back at some point

Paying with a credit card can be safer than using your debit card, especially when you buy online. This is for two reasons:

1. Payment protection cover

Credit card purchases worth £100 to £30,000 fall within section 75 of the Consumer Credit Act. This allows you to claim your money back straight from your credit card provider if your item is faulty or doesn’t show up.

Payment protection cover also applies to deposits and part payments. However, the £100 minimum applies per item, and shipping costs don’t count.

2. Anti-fraud protection

Credit cards usually also have free identity theft protection. As the name suggests, this protects you should someone steal your details and start racking up charges on your credit card.

Sometimes it just pays to use credit. And it doesn’t even take any extra effort. There are a number of credit cards on the market that offer cashback or rewards every time you spend.

Cashback credit cards pay you a small amount of cash (usually paid annually or monthly) every time you spend on them. The amount you get back is a percentage of what you’ve spent, for example if your card pays 1.5% cashback and you spend £100, you’ll earn £1.50. Over time this can really add up.

With rewards credit cards, you earn points every time you use it, these points can then be redeemed against rewards such as free air-miles, money off your food shop, or your petrol. Just make sure you don’t overspend just because you want more points.

The key thing here is that there’s no need to overspend just because you have a credit card. Used responsibly, these cards can actually help you maximise your money by giving you something back on purchases you would have made anyway.

To maximise your credit card rewards or cashback:

Choose rewards wisely.

It’s worth making sure that the rewards interest you before you apply. For example, rewards you can only redeem in Tesco when you always shop in Sainsbury’s are pretty pointless.

Use the credit card for your day-to-day spending.

This allows you to maximise your rewards or cashback without spending more than usual.

Always pay your balance off in full, each month.

If you don’t, it’s likely that interest will cancel out and rewards you’ll earn. Make sure you don’t miss repayments by setting up a direct debit and choosing to pay the full statement balance.