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Healthy habits for happy credit

Credit cards can seem a little daunting. But used well, credit cards give you freedom and flexibility to manage your finances.

Stay in touch with your balance

Like with any good friend, it pays to check in regularly and see how your credit card is doing. A quick balance check on your Capital One app can help you work out if you’ve got the money for that purchase, before you buy it. Let’s face it, overlimit fees (or getting declined at the checkout) aren’t much fun.

Only spend what you can afford to pay back

Paying off your balance in full (and on time) is a good habit because borrowing on your credit card costs you less if you do. We get that this isn’t possible for everybody though, so just watch out not to over-stretch yourself. Try and think about how long it might take you to pay back what you’ve spent, based on what you can afford to repay each month.

Know your limits

When companies run a credit check on you, they look at how much of your available credit you're using. Spending a lot of time close to the credit limit on several different accounts can look like you depend on borrowing to get by. And because lenders report your balance information to credit reference agencies regularly, using a high percentage of the total credit available to you can hurt your credit score. It can suggest you’re financially stretched.

A healthy credit score can make a big difference to your life. The better it is, the more likely you are to be accepted for new credit products and offers, such as credit limit increases.

Using CreditWise can help you understand and improve your credit score and report, for free. You can see what's holding you back and what's going well. You'll get tips on how to improve your financial health too.

Pay more than the minimum if you can

If your account is up to date, the minimum payment is the lowest amount you can pay to avoid missed payment fees. As it’s a percentage, it’ll be different every month because it rises or falls with your balance. Paying the minimum may seem like the most affordable route, but long-term it’s not. Debt hangs around on your card for longer and interest costs more if your balance is bigger.

If you switched from minimum payments to a bigger fixed amount you’d slash how much interest costs you and pay off your card much faster. Potentially years faster. (It’ll help you avoid persistent debt too.)

Let’s use Dave as an example. He set up a Direct Debit for minimum payments when he opened his account five years ago.

With the help of our repayment calculator, he recently discovered that if he switched from paying the minimum (£36 last month) to a fixed monthly amount of £45, he’d pay off his £1,000 balance 17 years, 3 months* faster. It’d cost him £1,740 less in interest charges too, compared to what he’d pay in interest if he carried on making minimum payments.

Automate your payments for peace of mind

If you know you’re going to have the right amount in your account every month, setting up a Direct Debit can help you make sure your monthly payments go on time. You can choose your own payment date too. No missed payments, late fees or extra admin. Brilliant.

Build history

Old friends know you the best. Successfully managing a credit account for several years can actually have a positive effect on your credit score. It suggests you're financially stable.

Lenders do like to see that you’ve got a track record of on-time payments and general good credit behaviour.

Healthy habits mean happy credit

Treat your credit cards well and they’ll look after you in return. Keep up these healthy habits and you can enjoy the freedom and flexibility that comes with sensible spending. We love happy relationship stories.

*Dave isn’t real, but his situation is based on real payment patterns of customers in persistent debt. To arrive at the numbers (payment amounts, interest savings and repayment times), we made some assumptions:

  • His card balance is £1,000. He switched from making his minimum payment each month (1% of balance, plus interest and fees incurred that month) to paying £45 each month. He has a Capital One Classic Card with an interest rate of 30.34% per year on all transactions and balance transfers. We’ve assumed that he doesn’t spend on his card or make balance transfers, he doesn’t incur fees and his T&Cs stay the same.
  • We worked out how much less interest he’d pay to clear his card balance and how much faster he’d repay his balance too by comparing the total cost of interest and the repayment periods before and after the changes made to his payments. We’ve also rounded savings to the nearest Pound Sterling.