Credit cards can be useful but, depending what type they are and how you use them they can also be disastrous.

In recent years the United Kingdom's love affair with debt has grown. Not so long ago any credit arrangement would have been frowned upon by the older generation but, these days, people of all ages own, and regularly use, at least one credit or debit card.

However, just how much we know about our agreement with a bank or financial institution is dubious. In fact many credit card owners know very little. Yet there are a few basic truths which are worth bearing in mind, no matter who your credit card provider is.

A refused card application may damage your credit score or rating

So many offers appear to be really good deals, however, sometimes these special terms only last for an initial period of time. Still, there is no harm in looking, is there? Wrong. By all means check out what is available, on one of the many Internet sites where you can compare the cost and usefulness of specific credit cards. However, if you actually apply for this new card, and are refused, it could affect your credit score. Something as simple as your income being below the required level could cause you problems.

When you compare the best on offer make sure that you also check the personal specification stated. If the provider states that applicants must be:

  • At least 18-years-old
  • In full-time employment
  • Earn in excess of 25,000

-then this is what is required. If you do not meet these requirements then your application will be refused. If this happens a few times your credit rating could plummet so be careful.

Making too many new applications will damage your credit score

When you are looking for the best deals out there, limit how many times you actually apply. Let's face it, if you take out a new credit card, only to transfer the balance onto another three months down the road, it does not look good on your credit report.

Change every two or three months and it could signal danger to a provider. It may look as if you are having trouble meeting the payments, have defaulted on an existing credit card agreement and, perhaps more importantly, the credit card provider will not make much money out of you. Balance transfer fees have slightly addressed this final issue, but not entirely.

You must make at least the minimum payment and do so on time

It is easy after a vacation or when you are unwell, to forget to make a payment. Still, if you are enjoying an interest free period it won't matter, will it? Wrong again. This mistake could cost you dearly. A late payment, however slight, will often attract a late payment fee, void any existing interest free period deal and may put a black mark against your good credit status.

Set up a direct debit to ensure that the minimum payment is paid and on time. Make sure that this payment will be made on, or before, the day it is actually due. You can still make additional payments, as and when you like, but you will have the peace of mind of knowing that the minimum payment will be made automatically.

Remember to always ensure that your payment meets the minimum requirement. If your minimum monthly payment should be £20 or dollars it is no good paying just ten. You will not get any brownie points for effort. Making the minimum payment, at the very least, is vital unless you want to attract penalties and expensive fees.

Never reveal your pin number

It may sound silly but plenty of people still do not protect their pin numbers enough. Many change existing pin numbers to easy to remember numbers such as birthdays, telephone numbers and house numbers, forgetting that these are also easy to crack by criminals.

People write down pin numbers, perhaps trying to hide the number in the middle of something else. For example, if a pin number is 1011 it could be written in the middle of a birthday such as 15.04.57. This would may be written as 1501011457. Clever? Maybe, but an experienced hand would probably soon guess what was going on.

What about your best friend? Surely he or she can be trusted with your pin number? Of course the answer is, no they can't. An accidental slip, or careless act, could leave your pin number vulnerable. Make sure that your personal pin number stays just that.

By all means personalize your pin, but in an obscure way. If at all possible do not write your pin down, anywhere at all, and never share it with anyone else. If the worst happens and you forget it request a new one. This should not take long and is a better option. Keep your pin number private and personal.

Your credit limit is not variable

How often have you gone slightly over your credit card limit and the provider has kindly set your limit higher?

This could have happened more than once. However, there are no guarantees that this welcome rise will happen again. If it does not your little oversight could cost you dearly.

At one time credit limits were raised on a regular basis, especially if you appeared to be a good risk and were a good payer. Nowadays, as the credit crunch bites, lenders are more reluctant to give you limitless credit. Keep a close watch on your limit and the balance.. Make sure that you spend wisely avoiding any sudden shocks. If your balance is near the card's limit, you could easily over step the mark. When you are budgeting take into account any charges due to be applied to the balance.

Assessing the cost is not always easy

Just how much does your credit card cost you? Any idea? You would probably be surprised at the cost of your credit card in real terms, unless you are very money aware. The best place to start assessing the pros and cons is fully reading the credit agreement, which you originally signed. Most of us never do this. Some people will skim over the relevant parts, but a thorough read of such documents is sensible and in reality vital.

Take note of:-

  • Late payment charges
  • Penalties
  • Credit limits
  • The current APR
  • APR flexibility fees
  • Your liabilities and obligations

Now that you have some detail to work on discover if your credit card is poor, good or great value. Search for credit card deals and compare on-line, with the alternatives available. If you have held this card a long time, an update, to one of the newer ones could be sensible.

A better option for outstanding balances may be a new balance transfer credit card. Using your new card just for a balance transfer could save you a lot of cash as long as you weigh up all your options.

Make sure that you:-

  • Do not use such a card for purchases
  • Can pay the balance before the interest free period ends
  • Can make the minimum payments on time
  • Are eligible for this new credit card

Finally remember that credit cards can be the bane of your life, a way of life or a lifesaver. It all depends on you and how you manage this potentially useful tool.