Four simple rules about using credit

The summer holidays are over, and you may already be looking forward to the Christmas season of presents and parties.

Perhaps you’re eagerly awaiting November’s Black Friday sales to see how much you can save on that new TV or sofa you have your eye on.

Or maybe you’re facing an unavoidable expense, such as replacing a broken washing machine, or winter coats for the kids.

The next few months can be an expensive time, and however carefully you budget, there may be times when unexpected costs mean you need to bridge a gap.

Used responsibly, credit can be a handy tool to help.

But to make sure you avoid any potential pitfalls, you need to arm yourself with the knowledge to borrow with confidence.

Here are four simple rules to help you when thinking about using credit.

1. Compare before you commit

From a loan to a credit card or overdraft, there are different ways to sensibly use credit and borrowing.

And your circumstances will determine which is best for your purchase.

For example, if you need to bridge a gap for a couple of weeks, then an arranged overdraft with an interest-free amount or a credit card may cost you nothing in interest, as long as you can repay the card balance in time.

If you need longer to repay, a loan will give you a fixed repayment plan over a period of years. Always check the interest rate - the rate you are offered when you apply may be higher than the rate advertised.

2. Make a repayment plan

No matter how big or small the loan or credit card purchase, make sure you can afford to repay it.

With a loan, you will have fixed repayments, so it should be straightforward to check the monthly Direct Debit won’t bust your budget.

With a credit card purchase, it is important to make a plan to clear the balance in full and on time, not just make the minimum payment every month.

To show you what this looks like in real terms we used the MoneySavingExpert calculator.

However, if you made a minimum payment of 2%, it would take more than 30 years to clear the balance, and you would pay £2,480 in interest.

There are also other fees to add to the repayment, so make sure you take a careful look at the cards individual fees within the terms and conditions.

3. Don’t act on impulse

Whether you’re shopping online or taking advantage of new freedoms to hit the high street, don’t rush into a purchase before you’ve carefully considered your payment options.

You could be offered an apparently quick and easy instalment plan, but even if the monthly payments sound affordable, check interest rates to see how much it will cost in the long run. You may be surprised.

The same rule applies for paying with a credit card - it may take a few seconds to flash the plastic, but if you haven’t considered the repayments, you could regret your purchase for months or even years.

One good habit to get into, is placing online purchases in your basket, and then waiting 24 hours to complete the purchase - it gives you time to consider whether you really need it, and if you’ve chosen the most sensible way to pay for it.

4. Know the score

Your credit score is based on the information lenders hold on you - such as how much money you owe, how many credit agreements you have, and whether you have any late or missed payments.

If you have a good score, credit providers are more likely to lend to you, and you are likely to be offered lower interest rates. For more information about credit scores visit tsb.co.uk/money-confidence/what-affects-your-credit-score-and-ways-to-improve-it.

This is not intended to be financial advice, as it does not take into account your personal circumstances.


Related articles

Register for mobile banking

We’re open anytime and anywhere. Take care of your day-to-day banking when you need to.

Set up mobile banking

Issues
logging in?

Follow our step-by-step tutorial to get back online from the safety of your home.
 

View tutorial

Need to visit us?
Visit our FAQs

If you need help with something specific, let us know what it relates to or search a topic.

Go to help page