For most people in the UK credit cards are an essential part of everyday life, they give you an enormous amount of convenience when paying for things and they also usually come with an extra level of protection from things like fraud – which is one great reason why you might use one instead of your debit card. Of course some people dislike using credit cards, after all if you have the money why borrow money to pay for things? It seems odd to borrow £50 for your shopping when you have that much in your current account anyway right?
Well there are plenty of reasons actually…
As I mentioned, you get protection. Credit cards are full of features that your debit card doesn’t have. If your card were to be stolen or cloned, the thief would only be able to spend your money up to the credit limit on the card and as long as you report it as soon as possible you would generally not be responsible for the bill.
Credit cards also give back; if you shop around you might well find a deal whereby you get 1-2% cash back on every purchase. It’s not a lot, but if you do all of your shopping with that card and say you spend £500 a month on it – well that’s £5-10 a month you would get back for free.
Also of course, using credit regularly will improve your credit rating. Banks love to see a long history of borrowing money and paying it off and credit cards provide the most convenient way of doing so. You may not think you need to worry about such things, but having a better credit rating will mean you have access to better rates on loans when you do need them; and after all, if you can save just 0.5% on your mortgage rate that will save you hundreds of pounds a year.
So what’s the catch?
Not surprisingly most people are suspicious of all those benefits, after all – why are they incentivising you to borrow money? That has to be bad right?
Well credit card companies actually make the bulk of their money through transaction costs. Sure you will pay interest if you don’t pay off you bill in full, but most people do (and you should too).
Every time you make a purchase, your credit card company will charge the merchant a fee of generally 2-3% of the total amount. Obviously the more people who use that credit card the more money the credit card provider makes.
Getting the best deal
There are a lot of credit cards out there with all sorts of promotions and offers available and deciding on the best card for you is no trivial matter. But that’s where we come in!
Choosing a credit card depends a lot on what you want. Are you looking for a good way to improve your credit? Do you want your first credit card but not sure if you’ll be accepted? Alternatively you might have debt you want to move around to save on interest or you might just want to get the best return on your spending.
There are credit cards for all eventualities and they don’t all work the same. Most cards have a 30 day no interest policy on all spending, but some cards extend that up to 60 or 90 days, which can be handy if you have a big purchase you want to spread over a couple of months.
There are also cards with special offers on balance transfers which can be an excellent way to manage long term debts if you are trying to pay them off with minimal interest. Of course you have to be careful how you use your cards and getting more than one card is sometimes helpful to make the best savings.
But maybe you just want some cash back – you don’t have debts, like using a credit card for the convenience and you want to get free stuff… Well getting on card is fine, but some cards give better deals on certain types of purchases than others, so for the best results some people go as far as to have 3 or 4 different cards for different things.