If you haven’t already worked out from my previous post regarding cashback (add link), I am a massive fan of doing all of my day to day spending on credit cards.
Credit cards exist to sucker people into spending more than they really have the means for. Worst case, they recover their costs to run the card network by charging users and vendors for their services. But from time to time, when people overspend or are just plain lazy, and can’t or don’t keep up the minimum repayments, their massive interest rates kick in and before long these individuals have a spiralling debt issue. This is where they make the real killing.
But for every one of those people, there is the other sort of person. And if you are reading this, you are already most of the way to being that other type of person. We other people take the systems that the credit card companies put in place to seduce us into spending more, exercise will power, and use them to our advantage. We use them to make money!
It is worth saying before I get into the meat of this guide, that it assumes you have a half decent credit score and will therefore qualify for these kinds of cards. If you don’t, I suggest you build up your credit score so that you can access the rest of the benefits these cards unlock.
Optional Step: Build up your credit score
If you have a half decent credit score and qualify for various cashback credit cards already then ignore this step.
There are a number of relatively straightforward ways to check your credit rating out there. You may get informed what your credit score is when you take out debt such as a mortgage, so other steps may not be necessary. Otherwise a number of services exist that will tell you your credit score on a free trial basis or otherwise. I have no particular favourite but have used Experian before. One thing to be conscious of is that every time you check your credit score, it marks your credit file. Too many marks on your file can be seen as a negative by some lenders, so its best to check it once and then follow some advice to improve it without checking on it too often.
If the eventual aim is to qualify for better products, you can check your chances of getting these with a “soft” credit check that does not affect your credit score. Most card issuers do these, but MoneySavingExpert also has a decent one that covers lots of different cards.
Anyway, so onto ways to improve your credit score. Well quite simply, be better with credit. Get a credit card, whatever you can qualify for, do your day to day spending on it, and pay it in full every month with a direct debit. Make it a habit, and before you know it, your score will be improving. Other things that improve credit scores are phone contracts (for frugal reasons I would only suggest a SIM plan) and getting yourself on the electoral register.
Step 1: Signing up for your first cards
So, assuming you have a decent credit score, or have improved it to the point where you qualify for some better cards, what should you go for? There are so many choices.
In short, you want to look for a credit card which rewards in something you want.
For most of us, that will probably be cold hard cash, and so the logical choice is a cashback credit card.
However, if you are a frequent traveller or aspire to be, and live near a major transport hub (particularly airports) then a points based card may be better for you. I have tried some of these cards in the past but have found myself opting for less optimum rewards as I cant get flights from my local airport.
The other thing you should consider is how likely the card is to be accepted at the places you shop. If you do all your shopping at a farm shop in the countryside, then an American Express card, which are less widely accepted, is probably not the choice for you. As such, I will try to always recommend a combination of cards as is my approach.
I will review cards on a regular basis, but my current top picks for the categories discussed are:
The American Express Platinum Cashback Credit Card – offers 5% cashback for the first 3 months up to £200, and then 1% thereafter. There is a £25 annual fee, but this is more than covered by the introductory offer provided in my referral link here
The Natwest Reward Mastercard – This one offers 1% on supermarket spend, and 0.5% on everything else. You can get the fee waived if you get the nattiest rewards current account, which does have a nominal fee, but is more than make up for by the rewards. More info here.
The Tandem Cashback Mastercard Credit Card – offers 0.5% on all purchases. More info here.
The American Express Preferred Rewards Gold Credit Card – offers a massive introductory 10,000 points as well as points on all purchases, which can be converted into products, vouchers, airmiles and hotel rewards points to be redeemed globally. Only watch out with this one is that you NEED to cancel after the first year, as they start charging a hefty £140 fee after this point. More info here.
The Sainsburys Nectar Mastercard – If you are a Sainsbury’s shopper this one is great, no fee, and a massive bonus. More info here
The Virgin Atlantic Reward Mastercard – For those who fancy flight rewards, and live close to an airport with virgin flights (Heathrow or Manchester) this might offer a better return. More info here here.
I normally always have two credit cards on the go. An American Express for the better deal where it is accepted, and a Mastercard or Visa for everywhere it isn’t accepted.
Step 2a: Pay in full and on time every month
This one is really important. To avoid the crippling interest, which will smash all of your hard work, you HAVE to pay for these in full (the statement balance) every month.
The simplest way to do this is to set up a direct debit for the whole statement balance every month via the card issuer.
Step 2b: Put money aside when you spend on the credit card
The trap of credit cards is that by removing you one step from your money, they create the illusion of being able to spend whatever you want.
Don’t fall for it!
Instead, either transfer a sum of money every month and stick to this, or transfer money as you spend on the card, to make sure you NEVER spend more than you have.
The way we have chosen to do this is to set up a separate current account linked to the credit card by direct debit for each credit card. We send a sum of money every month (e.g. our grocery budget) to that current account and then stick to this budget.
I have previously also transferred money to a dedicated instant access saver away from my current account for this exact purpose.
Step 3: Do as much of your normal spending on these cards as you can
Hopefully no explanation needed here. The more of your normal spend you do on these cards, the more rewards. Always use the card with the best reward prefferentially.
BUT, beware of overspending! See point 2b.
Step 4: Change your cards often
The introductory offers are the best reason to get a card normally, and so once this is over, and you have reaped the benefit, cancel the card and move on to the next one.
A nice tip. Leave an American Express card for 1 year, and you qualify for the introductory offer on the same card all over again.
Cards also change their terms and rewards constantly, so if they introduce a fee or cut the rate of the reward, then its time to look for a switch.
Step 5: Refer each other
This one goes hand in hand with step 4 really. But as you and your mates move around, make sure you refer each other for cards. There are normally rewards associated for both the holder and new customer, and this works particularly well with American Express, such as this referral reward.
Step 6: Use those rewards!
Don’t forget about them! Most points based systems have an associated expiry, normally in the region of 2 to 3 years), so use them when you have saved for what you want.
Phew! That was a biggie!
As I said I will keep reviewing cards and updating this page with the best buys as they change.