A credit card allows you to pay for things with money a bank is loaning you. Proper use of a credit card can boost credit scores, but improper use will send ratings plummeting.
It is important to pay your credit card off in full at the end of every month to avoid paying interest fees.
One money expert discussed an important rule when it comes to spending on credit cards no all will be away off.
However, it could affect borrowing potential in the future, which can be especially damaging when it comes to getting a mortgage.
Francesca aka The Money Fox – who recently shared how to save up to £600 each month – said taking out a credit card could be one of the biggest financial mistakes, leaving Britons facing huge debt.
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What is a credit utilisation rate?
Francesca explained: “It’s what lenders look at to see basically how much they lend you versus how much you use.
“So, say the bank will set you a £15,000 limit on your credit card.
“Lenders will want to see if you are going to use all of that.
“They want to see how you’re going to manage your money, because if you use all of that, then it looks like you’re not very good at managing your money.”
She claimed the ideal credit utilisation rate is around 30 percent.
The credit utilisation rate is one of the more important factors taken into assessing your lending potential, so it is important to be aware of it.
Francesca also detailed a credit score mistake, which could affect your borrowing potential.
She explained how commonly Britons fail to even check their credit score.
Scanning your report in detail, which while perhaps not fun, is vital.
Sometimes, mistakes can occur on credit reports which, unchecked, might cause problems.
If you have an error on your credit report you will have to appeal to have it removed.
These areas can be down to simple admin mistakes such as misspelling a name.
The expert said: “It’s not instant, but they will do it quickly. So, the very first thing when thinking about credit is to view and check your credit report.”
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