How to use a credit card wisely

9 min Read Published: 29 Nov 2023

How to use a credit card wiselyBy using a credit card wisely you can put yourself in the best possible position to maximise all the benefits of your card and avoid many of its limitations. This is easier said than done, but all it takes is a good understanding of how credit cards work and a solid set of principles to follow. In this article, we list our 10 top tips for using your credit card wisely.

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The best way to use a credit card

Here are 10 top tips to follow to make sure you are using your credit card wisely:

1 - Pay off your credit card in full each month

Explaining how to use a credit card wisely will almost always involve ways to avoid interest, fees and charges. The most obvious example is that you will not be charged any interest if you pay off your card in full every month. Most cards offer a period of at least 56 days – or much longer if you have a 0% credit card – before interest charges are applied to your balance. If you clear your debt within this timeframe, then you will avoid interest and your borrowing will be interest free.

Only clearing part of your balance will mean you are charged interest on what is left over. This charge then becomes part of your balance and will itself grow with interest. This compounding effect means that what you owe on your card can quickly grow into a significant amount. Setting up a direct debit to cover the full balance will ensure you avoid any extra interest charges.

2 - Avoid late payments

It is important to pay your credit card bill on time, even if it is only the minimum payment. Missing a payment can quickly become expensive and have an impact on your ability to borrow money in the future.

If you are worried that you will be unable to make the minimum payment on your credit card, contact your provider as soon as possible. Your card provider may be able to restructure your payments or freeze the rate of interest for a certain period to make your monthly commitments more affordable. In some cases, you may be able to take a payment holiday, though this will lead to the repayment process taking longer as your balance will continue to grow with interest while you are not making repayments.

As well as getting in touch with your credit card provider, you could also contact an independent expert for some free debt advice. Debt specialists can explain the steps you need to take, help you make a plan and even speak to creditors on your behalf. We have information on who to contact and how in our article ‘Where to get free debt advice’.

The best way to avoid forgetting to make a payment is to set up a direct debit for your full balance each month. This way the money will come out of your bank account automatically and clear your credit card debt meaning you will not have to worry about remembering to make the payment on time.

3 - Pay more than the minimum

The minimum payment on a credit card is the lowest amount you are required to pay in order to clear some of your balance, but you should always try to pay more.

It will take a very long time to clear your balance in full if you are only paying the minimum amount and it will mean you'll end up paying a significant amount in interest charges. The minimum payment will be decided by your credit card provider and is calculated as a percentage of your outstanding balance plus fees and charges, with a minimum flat fee (such as the higher of 1% of your balance plus interest, or £15). This means that as your balance decreases, so too will the minimum payment, assuming you don’t continue to spend with the card you are trying to pay off. The effect of this is that it will take much longer to clear your balance than if you paid the original minimum every month. We explain this in more detail in our article ‘What is the minimum payment on a credit card?’.

4 - Stick to your credit limit

Your credit limit is the maximum amount your credit card provider is willing to let your balance go up to. It is important not to spend more than your credit limit allows, for two key reasons.

Firstly, if you spend enough to go over your credit limit, you will be charged a fee. This will usually be added to your balance and will grow with interest alongside the rest of the money you owe at the end of your interest-free period.

Secondly, exceeding your credit limit will affect your credit score and your ability to borrow in the future. Your credit limit is the amount that your credit card provider has agreed to let you spend up to. Breaking this agreement by spending beyond this figure will suggest to other lenders that you are not a reliable borrower and that you struggle to control your spending. This means that you may find your future borrowing options limited as credit card companies may be less willing to offer you the best deals, and you may also see your credit score go down.

If you are approaching your credit limit and know you will need to spend more money on that card without paying any of your balance off, you should ask your credit card provider to increase your credit limit. This will save you money on fees and limit the risk of damaging your credit score, but you will need to be confident that you can pay for the additional spending – and that you won’t be tempted to overspend. Keep in mind that your credit card provider is well within its rights to refuse an increase and will make a decision based on its own affordability criteria.

5 - Do not use a credit card for cash withdrawals

It is good to know when to use your credit card and when not to. Avoid using your credit card for cash withdrawals because it is usually very expensive. Your provider will likely add a high rate of interest to any balance you build up through cash withdrawals, which will apply even if you pay it off within your interest-free period. This is because cash withdrawals are considered a form of cash advance rather than a purchase, so your interest-free period for purchases will not be relevant.

As there is no interest-free period, the interest charges will be added to your balance from when you take the cash out until you pay it off. The consequence of this is taking out £20 from an ATM could end up costing you much more than the cash is worth, even if you pay off your balance in full. Withdrawing cash is a great example of how in some scenarios it will be better to use a debit card than a credit card. Read our article ‘Credit card vs debit card: Which should you use and when?’ for more information.

6 - Make the most of consumer protection

Avoid using your credit card for cash withdrawals, but do use it to protect yourself. Credit card spending in the UK comes with free payment protection (if your purchase costs more than £100 and not more than £30,000) through Section 75 of the Consumer Credit Act. Section 75 makes your credit card provider jointly liable with whoever sold you the product or service if something goes wrong. This means that you should be refunded if you do not get what you paid for. For example, you should get your money back if the company you paid goes bust before you get what you paid for, if what you ordered does not arrive or if a service is not as described.

Debit cards come with protection too through the chargeback scheme, which also protects card purchases beyond the limits of Section 75. This is useful if you make a small purchase under £100 on your credit card or a big one over £30,000. However, only Section 75 is part of UK law, while chargeback is a voluntary scheme that card providers can choose to opt out of.

We cover your rights under Section 75 in more detail in our article ‘Section 75 of the Consumer Credit Act explained – plus how to claim’.

7 - Budget when spending

Using a credit card wisely involves sticking to a plan. One of the biggest dangers of using a credit card is the temptation to overspend. To avoid this pitfall, you should try to organise your monthly outgoings and stick to a budget.

With a credit card, the money does not instantly leave your current account as it does with a debit card. This can make it easy to spend now and worry about it later. However, you will have to deal with that extra spending eventually, possibly with added interest charges and fees. While your spending is capped by your credit limit, the optimum way to use a credit card is usually to spend exactly how you would with any other payment method. This means resisting the temptation to push up to your maximum credit limit or to spend a bit more to earn more rewards. Keep in mind that the value of reward points will not usually outweigh any extra money you spend to earn them.

Many people find that the easiest way to budget is by using an app. There are some great options out there to help you track household bills, plan for the future and avoid wasting money. You can see some of the best apps on our page ‘The best budgeting apps in the UK: How to budget without trying’.

8 - Monitor your credit score

Part of using a credit card wisely is maintaining or developing your borrowing power. Your credit score is the numerical rating of your credit history. A good credit history suggests to lenders that you are a reliable borrower, boosting the range of credit cards you are able to get and improving the interest rates and deals you are offered. It is important to monitor your credit score to understand how lenders see you and what you can do to make yourself a more attractive borrower. You will also be able to dispute any mistakes and make sure the information on your credit file is correct. We cover how to check your credit score for free in our article ‘The best way to check your credit score for free’.

If it turns out that you have a low credit score or one that needs a bit of improvement, there are some simple steps you can take to increase it, which we explain in our article ‘How to improve your credit score quickly’.

You can also use your credit card to build a strong borrowing history and improve your credit score. This is done by repaying what you owe on time, avoiding any missed payments and limiting the amount of credit cards you have. We go into more detail in our article ‘How to build your credit score with a credit card’.

9 - Choose the right credit card

The first step in using a credit card wisely is to make sure that you are using the right card. There are specialist cards for spreading costs, balance transfers, money transfers, earning rewards and more. Decide what you need your card for and match that up to the plastic that can do that job. If you are unsure, take a look at our article ‘Which credit card is best for me?’, which runs through a few scenarios for using a credit card.

If you do not have the right credit card, it is not too late to switch to a new one. We explain how in our article ‘​​Switching credit cards: What’s the best way to switch credit cards?’.

You can use Money to the Masses partner Creditec* to quickly build a list of the credit cards that match up with your needs. By simply adding in a few basic details, you will get a tailored collection of the best credit cards for you. You can use your Creditec results to check how likely you are to be accepted for a certain card, which cards available to you offer the best rewards or find out what option will leave you with the lowest fees to pay. Creditec is able to check your eligibility without running a full credit check, which means your credit score will not be affected. Click this link to start your comparison*.

10 - Maximise the benefits and avoid the pitfalls

A credit card can help you save money, earn money on your spending and improve your financial situation. However, credit cards have limitations that can lead to you paying more money than you need to, building up debt and damaging your future borrowing prospects. A key part of using a credit card wisely is understanding the strengths and weaknesses of spending with a credit card and making it work for you. Read our article ‘Credit card advantages and disadvantages’ to learn more about the features to take advantage of and the issues to avoid.



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