My experience of signing up for a credit card

Having qualified this year, dentist Hansi Majeithia is beginning a financial literacy journey (with a little help from The Next Step).

Part of this journey involves understanding credit and credit scores, which has led to her signing up for a credit card. Here she talks us through her experience, explaining why she believes understanding your finances is important…

When someone says the words ‘credit card’, your first thoughts may be…debt, avoid, red alert! You may even think: “I’m a dentist – I won’t need to borrow money!”. Controversially, I believe credit cards are significantly more helpful than you might initially expect.

After university, it dawned on me that my credit score was probably weak. After a quick check online, it confirmed that my credit score was, in fact, weak. I’ve never had a bill in my name in my entire life, and I had to do something to improve my score.

My credit score is important to me as one of my long-term savings goals is to buy a flat and eventually open my own practice. Your credit score is the first thing banks will look at when you apply for a mortgage, business loan, tenancy screenings, insurance and plenty of other things.

For me, I’ve come to realise that it will be a key determinant in dictating my financial decisions in the future.

Choosing a credit card

Initially, I was incredibly overwhelmed when I was researching which credit card was best for me. There are so many options and each one seemed to come with different limits and benefits. I had no clue what would work for me and what would simply be unobtainable or unmanageable.

I was swallowed by a black hole of companies to choose from. Who offers the best perks? What are the lowest annual fees? What is the highest credit limit? I want to get 5% cashback, no 10% cashback, AVIOS points, 150+ airport lounges…and so on!

Ultimately, I needed to remember not to lose sight of what my goals were. Although there were many temptations, the main aim for me was to improve my credit score. The rewards and benefits are just an added bonus which I tried not to let carry a large weighting in my decision.

You may have previously thought: “Who is that pretentious person constantly asking if they accept AMEX at the dinner table?”. But actually, they’ve probably decided that the financial benefit it will provide them in the future outweighs the tedium of having to ask if their card will get declined everywhere.

This was a choice that I, like many others, made. I decided that AMEX was the most compatible with my needs and that is what I opted for.

I’ve always had a fear of the loan sharks knocking on my door, so one disclaimer directly from me – it is essential that you remain on top of managing your credit card. It’s not an endless supply of money and it can be easy to lose control.

It’s like placebo effect, as if it’s not your money you’re spending. Remember you have to pay back every penny – and potentially more.

Making repayments

You can repay money borrowed via direct debit or manual payment. Both have their pros and cons. Setting up a direct debit means you do not have to remember to pay – however, you must have sufficient funds in your chosen account.

Paying manually means it’s very easy to forget to pay by the deadline. If you do not pay on time, your credit score will be affected and you will have to pay interest on what you have borrowed (possibly a late payment fee too).

I have set up a direct debit as I’m quite strict with spending on my credit card. I try not to make huge purchases so there is always enough money in my account to pay it off.

Managing my card

I also set a limit to the amount I spend on my credit card monthly. This is to make sure I don’t overspend and lose track of what I owe. The main purpose of getting a credit card is to improve my credit score, not to go on major shopping sprees.

I’ve learnt that with most things in life, there is always a balance. If you balance your spending and don’t go overboard then the aids available will be benefit you. However, if you take advantage of them, they will disadvantage you.

Please note that these are the views of the individual author and do not reflect the views of the Wesleyan Group of Companies. This blog does not constitute as financial advice.