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67% of Brits have no idea
what their credit card interest rate is, finds survey
IT'S the little rectangle of plastic you keep in your
wallet just in case, and it comes in handy when you don't have enough cash for a
purchase. But are you actually using your credit card the right way? If you're
lucky enough to be granted one with a decent sized credit limit, you might think
you have to keep it just for big ticket purchases, like a kitchen, exotic
holiday, or even a car. Sometimes you might even use it to get cash out, or use
it to pay off other debts, depending on how your finances are fixed. But
actually, you might be surprised to find out you're using your credit card all
wrong!
Credit report and score website MyCreditMonitor surveyed
1,500 people to find out how they use their credit cards and the results showed
that 63% of the population are not using them in the right way! Even bigger is
the amount of people: 67% of the respondents indicate that they have no idea
what the interest rate on their current credit card(s) is; which, if not paid
off in full every month, could work out to be extremely expensive. Darren Pickersgill, an Independent Financial Adviser (darrenpickersgill.2plan.com) told
MyCreditMonitor what the right and wrong ways to use a credit card are.
“From the various ways in which consumers can use credit cards, the survey
found that most of the respondents were using theirs incorrectly unbeknownst to
them." Here is what the survey has found along with Darren's tips to
help you manage your credit card(s) correctly.
Wrong Usage....
27% of the respondents use a credit card to make big purchases (like a kitchen
or a wedding, instead of getting a loan):-
Darren's tip:- “Using a credit card for expensive purchases like this is
probably not the best idea. To start with, the high interest rate on most cards
(excluding offers) means the debt could cost you more and take longer to pay off
than other forms of borrowing (like loans, finance etc.) Also, such a large
purchase could use up a high percentage of your available credit, which may mean
your credit utilisation percentage becomes more significant.”
11% of us only make the minimum payment.
Darren's tip:- “This can mean that your debt takes a lot longer to pay off
and will end up costing you a lot more, as you will typically be paying interest
on the interest each month. Even if you can't pay off the full amount due each
month, paying as much as possible may help to significantly reduce the amount of
time it takes to pay off the debt, and how much it could cost you.”
12% of us use credit cards to withdraw cash.
Darren's Tip:- “Using your credit card to withdraw cash can attract a
higher rate of interest than using your card for purchases. On top of that, you
are often charged a fee for a cash advance and the interest is usually charged
from when you withdraw the cash; so you don't get the normal 45 to 60 day
interest free period that you would get for making purchases using your credit
card. Also, all of the above will typically apply to cash withdrawals with your
card, transferring cash from your card to a bank account, purchasing travellers'
cheques or foreign currency, and using your credit card for gambling or betting
(a bad idea for other reasons) could all be classed as cash advances.”
9% of us use our credit card to pay off other debts.
Darren's Tip:- “Some people may be left with no choice but to pay off
other debts with a credit card, but this should be avoided, if possible. The
main reason being that credit card interest rates tend to be a lot higher than
other forms of borrowing (like loans and overdrafts for example), so unless you
can pay it off quickly, or you are taking advantage of a card with a balance
transfer or a low interest holiday loan offer, using your credit card will
probably mean the original debt will end up costing you a lot more.”
4% use as much of their credit limit as possible.
Darren's Tip:- “This is where understanding credit utilisation becomes
important, i.e. how much of your credit limit have you used up. The higher your
credit utilisation percentage, the more likely lenders are likely to think that
you 'need' to use all your available credit, and that you could have issues
repaying your debt.”
Right Usage....
Only 37% of Brits use their credit cards the 'right' way, for day to day
expenses, then pay the total off each month.
Darren's Tip:- “Using your card this way has a number of benefits,
depending on the card. 1st of all, you'll probably be able to take advantage
of a reasonable interest free period (typically 45 to 60) days, so if you pay your
debt in full each month, it won't cost you anything. Secondly, using a credit
card for your purchase can provide you with a certain level of protection
against issues of fraud (it's not your money that gets taken it would be the
credit card companies, who will take action to get it back), and you may benefit
from other features such as extended warranty period and cashback bonuses.”
"I think these results will surprise a lot of people," says Sati
Dhanjal, Vice President at MyCreditMonitor. "We traditionally think that
we should keep our credit card for those 'big' purchases, rather than do smaller
things like buy groceries, or travel tickets, which we would be more
realistically able to pay off at the end of the month, avoiding huge fees.
Hopefully, following Darren's advice, people will think about adjusting their
habits." |
