At the end of December 2020, the total amount of debt owed by people living in the UK stood at just over £1700 billion. Of this amount, just over £58 billion was made up by credit card debt. This shows that credit has become a part of everyday life for many UK residents and shows little sign of slowing down, but is using credit a good idea?
Figures would undoubtedly show that it has become a popular, if not a necessary, way for people to handle their finances, and while many people can manage credit quite well, it can be something which others struggle with.
Credit cards, loans and overdrafts make up the bulk of non-mortgage borrowing in the UK and there are very few people who don’t have at least one of those forms of credit in use at any one time.
What are the Advantages of Using Credit?
One of the main advantages of credit is that it helps you purchase larger-priced items and pay them off over time. For example, most people would not afford to pay upfront for the car as many new cars involve a five-figure price tag. That’s why many car buyers will take finance deals to pay for the car over a period of time, usually between three and five years.
Using credit can allow you to manage your money and get the most out of your income each month. Many credit cards also come with cashback offers and rewards schemes, so used carefully, you can make money and get many perks from using credit.
Every time you use a credit product, such as a loan, credit card, or finance agreement, this will help you build up a credit history to generate your credit score. This will then allow potential future lenders to assess how suitable you are. Therefore, using credit can help gain access to other products in the future, such as mortgages and loans.
What are the Disadvantages of Using Credit?
The vast amount of credit being used suggests that many people can’t get by without it. While maintaining a healthy credit history can work to your advantage, constant borrowing can lead to difficulties. It can involve slipping into an overdraft in your bank account, which then involves high-interest rates, making it more difficult to get out of your overdraft.
Debt can easily build once you start borrowing more to pay off existing credit, and then you become reliant on it.
This can lead to unaffordable lending, such as credit cards with high-interest rates and the use of store cards and in-store credit, which don’t often offer favourable rates. Higher interest rates mean the increasing amount of your repayments go towards paying interest rather than the capital itself, making it harder for you to get out of debt.
Regular borrowing will also show up on your credit history, and if you show a pattern of taking out multiple credit products, this can adversely affect your credit score.
👉 For more information about the issues with borrowing money, check out our blog post on Unaffordable Lending: What This Means for Your Credit Score?
Can You Get Debit Card With Bad Credit
Even if you have a poor or limited credit history, you can still get a debit card. With some banking providers, a debit card does not involve any form of borrowing, therefore a credit check is not required before taking one out.
However, many debit cards are linked to bank accounts and if you may find it difficult to open certain bank accounts which offer debit cards if you have bad credit. You may not be able to open a bank account that provides an overdraft, for example, because this essentially involves borrowing money from your bank when you don’t have enough in your account.
There are bank accounts that offer debit cards but which don’t offer overdrafts. These are known as basic bank accounts, and because there is no element of borrowing involved, you can start one up even if you have bad credit.
Another option for someone with bad credit looking to get a debit card is to take out a prepaid debit card. These involve loading money onto the debit card before using it, so you can only ever spend the money you have on the card at any time.
Alternative Banking with Suits Me
A prepaid card works in a similar way to a debit card, except there is no overdraft or lending facility attached – removing the option to slip into debt and needing to pay fees and charges for borrowing the money.
Here at Suits Me, we offer much more than just a basic prepaid debit card. Our accounts are personal e-money current accounts that work similarly to a traditional bank account. You’ll gain access to online banking and our mobile banking app, where you’ll be able to manage your money on the go, 24/7.
We offer a whole variety of banking features including:
- The ability to set up standing orders and manage direct debits,
- Send money within the UK via a bank transfer,
- Gain access to our exclusive cashback reward programme where you’ll automatically get a percentage of your money back when you use your Suits Me debit card with our retail partners.
Opening a Suits Me account takes 10 minutes and you’ll gain access to your online banking immediately so you can start managing your money. We don’t ask for proof of address or run a credit check. We accept 99.8% of all applicants – so if you’re looking for a suitable alternative banking solution apply today!