Nine reasons to take out a credit card
Here are nine reasons to take out a credit card and three things you should avoid doing once you have one.
Researchers at consumer organisation Which? have come up with this advice.
Reasons to have a credit card
1. Cashback. If you pay off your bill in full every month, a cashback credit card will pay you a proportion of your spending, either as a cash payment or knocked off your bill once a year.
2. Rewards. Like cashback cards, reward credit cards pay you points or vouchers for every pound you spend. Spending in-store usually earns a higher reward than elsewhere, so it's worth considering a reward card from your favourite shop. Don't confuse reward credit cards with poor-value store cards though!
3. Money off. Some retailer- or airline-branded credit cards offer discounts, for example on flights or in in-store cafes. Be careful with travel company credit cards though - many companies add on a surcharge if you want to pay by credit card, so the discount is not as generous as it first seems. Read the Which? card surcharges guide to find out which companies charge for debit and credit card payments.
4. Protection under section 75 and chargeback. If you pay for goods or services costing over £100 and up to £30,000, you get valuable protection under section 75 of the Consumer Credit Act if things go wrong. Even if section 75 doesn't apply, you may be able to put in a claim under the industry-agreed chargeback system. For more detail, read the Which? guide Your rights when paying by credit card.
5. Avoid charges overseas. Most debit cards charge you a foreign loading fee if you use them for purchases abroad. Most credit cards do too, but Which? Best Rate credit cards for using abroad don't charge you this extra fee.
6. Boost your credit score. Most of us know that having too many credit cards can damage your credit score. What many people don't realise is that having no credit history can be equally damaging. If you haven't borrowed money before, potential lenders will find it difficult to judge whether you're a good credit risk or not, so might reject your application. Using the Which? credit card finder to choose a card for people with a poor or no credit history could help you boost your credit rating. But make sure you pay the bill in full every month as interest rates on these cards can be high.
7. Protection against theft. If you lose your wallet or purse full of cash, it's likely that you won't get it back. However, so long as you haven't been negligent or fraudulent, you won't lose more than £50 if your card is used by fraudsters - your card provider will cover any other losses on the card.
8. Track your spending by linking it to personal finance software. Many personal finance software packages allow you to import your online credit card statements. You can then use the software to analyse your spending habits and find areas where you can save money.
And finally, reason nine for very organised credit card users
9. Earn interest. Follow these five steps to earn interest on your shopping:
• Step 1: Apply for a Best Rate 0% on new purchases credit card.
• Step 2: Set up a direct debit for the minimum payment. If you don't make at least the minimum repayment each month, you'll lose the 0% deal and end up paying interest, defeating the whole object of the exercise.
• Step 3: Put your shopping on the card, but make sure you keep within your credit limit.
• Step 4: Open a Best Rate easy access savings account. Each month, put the amount you would have paid off your credit card (less the minimum repayment explained in point 2 above) into your savings account.
• Step 5: A month before the 0% deal on your credit card is due to expire, take the money out of your savings account and pay off the full remaining balance on your credit card.
Three uses for credit cards you should avoid
There are also plenty of things you shouldn't do with a credit card, including:
• Pay for foreign currency. If you want to buy foreign currency before you go on holiday, don't pay by credit card - not only will your card provider charge you a cash advance fee, most will also charge you a higher APR and you won't get an interest-free period, even if you repay your bill in full on time. The same goes for buying gift cards and vouchers.
• Pay by credit card cheque. Credit card providers aren't allowed to send unsolicited credit card cheques any more, but if you've got any hidden in a drawer or if you've opted in to receiving them, shred them now. Section 75 cover never applies to credit card cheques and you may have to pay a fee to use one.
• Withdraw cash. As with buying foreign currency, cash withdrawals attract a withdrawal fee, as well as a higher APR and no interest-free period.