When used appropriately, credit cards can actually be quite helpful and, in fact, they can be used to build up a healthy credit score, which can be very beneficial for gaining access to other financial products, such as a mortgage.
However, it’s important to make all repayments on time and that you only use a small portion of the credit card limit that’s been set if you do want to build up a solid credit score (1).
If you’re unable to pay off the entire amount that you owe each month, it can also become quite expensive later down the line and if you fail to make the minimum payments you will fall into arrears. If this happens, your lender will be in touch to demand payment and if you’re still unable to make repayments, your account will default.
This is when your creditor sends you a default notice because you’re in breach of the terms in your credit agreement. If the default is applied, it will be recorded in your credit file and may have an impact on your credit rating.
Debts can only default once but if this does happen, your creditor will be able to take further action to collect what is owed. This could potentially include employing debt collection agents to recover monies.
Help is available with credit card debt, however. Your creditors may offer you a payment holiday for up to three months, for example, which will make sure that your credit rating remains unaffected.
They may also offer to increase your credit card limit, but this should perhaps be approached with caution, as the long-term impact could be worse than your current situation.
It is also worth noting that if you’re already on a debt management plan or similar, taking out extra credit could go against the terms of the agreement.
If you are struggling with debt at the moment because of cost of living challenges, get in touch with us today to see how we can help.
References:
1. https://www.experian.com/blogs/ask-experian/how-to-use-a-credit-card-to-build-credit/#:~:text=Credit%20cards%20offer%20one%20of,of%20your%20card’s%20credit%20limit.
