A financial expert has issued a crucial warning about credit cards, cautioning that ignoring this advice could result in 1p costing “as much as £1,000”.

Many Brits regularly utilise credit cards. These cards allow you to make purchases or withdraw cash up to a predetermined limit.

Unlike a debit card, it uses borrowed money that must be repaid at a later date.

However, most credit cards apply interest to the borrowed funds if you fail to repay an agreed amount each month. Martin Lewis, the founder of Money Saving Expert (MSE), elaborated on how this could trip up many people.

In a video posted on the MSE website, he disclosed that an obscure rule could result in 1p costing you “as much as £1,000.”

Martin stated: “This is an important warning about the way that credit cards work.”

To illustrate his point, he asked viewers to envisage spending £1,000 on a credit card and then repaying £999.99. While one might assume that means you only pay interest on the remaining 1p, that’s not actually the case.

Martin continued: “Imagine you’ve spent £1,000 on the credit card. If you then pay off the £1,000, so you totally clear it, there is no interest in the month.

“But if you were to pay off £999.99, so you’re just a penny short, you don’t pay interest on a penny for the month, you still pay interest on the entire £1,000.”

This could end up costing you significantly more than you initially anticipated.

“This is why for years, my catchphrase has been pay off your credit card in full – the ‘in full’ is important,” he said. “I talk about it when it’s a credit card reward, say for getting cash back, or for cheap spending on a credit card abroad, because if you do the in full you neuter the credit card’s ability to charge you interest.”

He continued: “If you miss even a penny, it can still charge you a whack.” The MSE website provides additional guidance on credit cards.

It also cautioned against failing to meet your monthly minimum payment. MSE stated: “Your monthly card statement will tell you the total balance you owe, the minimum repayment you must make and the due date. Missing the minimum payment will result in a late fee and a mark on your credit file for up to six years.

“Yet only making the minimum repayment can keep you in debt for years and even decades. So, if you can, it’s always best to pay as much off as possible.”

For further information on credit cards, visit the MSE website here.