Credit cards are everywhere in the modern world. Most of us own at least one right now. Whilst they are a very useful tool for those looking to make purchases, they do not come without risk. Nevertheless, when used correctly, the advantages of using a credit card are many.
With cash you know where you stand, but the cost is instant. With a credit card, you have time, and flexibility. You can spread out the cost of a large purchase, such as a home appliance, over several monthly payments. Or you can put off payment for a few weeks, until the next payment date on the card. Depending on the terms of your card, either way you can delay or spread payments at no extra cost. The card can be utilised for emergency situations where you might struggle to pay immediately for something you need. Just ensure that you are in a position to pay off what you spend, quickly.
Any purchases you carry out valued between £100 and £30,000 on a credit card are protected by Section 75 of the Consumer Credit Act. This means if the transaction goes wrong, for example if the selling company goes bust or if the purchase is faulty or goes missing, you can claim the cost back from your credit card provider. You will also be able to claim for a refund if your credit card is used fraudulently, as long as you weren’t negligent with it. This happened to me only 3 months ago, when £300 was spent on my card at a fishing tackle shop! Halifax refunded the amount within 3 days of my phone call.
This relates to using a credit card to your advantage. Every credit card provider wants your business and will throw a particular offer at potential customers to entice them in. Use the offer that best suits you, be it 0% interest on purchases, balance transfer offers or cashback rewards when you use the card.
An example. Some credit cards offer a 0% interest period that effectively lets you borrow for free, providing you make your monthly payments. Even if you pay the minimum amount required per month, you’ll still be borrowing interest free until this period ends. At this point it is vital you pay off everything you owe so that interest rates do not kick in and cost you money.
Let’s look at those other types of rewards. If you’re a keen shopper you might find a cashback or store credit card to be ideal. If you’re often flying from country to country you might prefer an airline credit card, and build up those air miles. There are few better feelings than cashing in reward points, and effectively getting something for free.
Another example is a balance transfer card, that allows you to escape exorbitant interest rates on cards, giving you breathing space to pay back what you owe. Always factor in the one-off transfer fee however, often around 3% of what you transfer.
if you have a poor or limited credit report, having debt and making regular repayments is actually a good thing and will help improve your score, as it shows you to be trustworthy to lenders.