Why should I get a credit card?
If you’re wondering whether a credit card is right for you, our guide looks at the things to consider before applying
What are the reasons for getting a credit card?
If you’re thinking about getting a credit card, you may be on the fence because of some credit cards myths you’ve heard. However, when used responsibly credit cards can help you manage your money and improve your credit score.
Below are some common reasons why people take out credit cards:
To make a purchase
The right credit card can help you buy an expensive item and spread the cost over several months. Known as purchase credit cards, these cards typically give you an interest-free period on your card spending before the interest rate rises.You’ll still need to make the minimum monthly payment on your credit card, but you won’t incur interest on your balance during the interest-free period.
To improve your credit score
When used responsibly, a credit card can help increase your credit rating because it shows potential lenders that you can handle borrowing and repayments. A higher credit score can help you get better deals on credit cards, loans and mortgages.
To transfer debts to a cheaper rate
You can transfer outstanding debts to a balance transfer card. These credit cards offer low or often interest-free periods - with the aim you can pay off your debt in full before you have to start paying higher interest rates again. There will usually be a one-off fee, typically 2% to 3% of the transferred balances, to switch to a balance transfer card.
What are the benefits of getting a credit card?
Credit cards can come with a range of benefits, including:
Building your credit score: If you make your credit card payments on time, you can boost your credit rating. An improved credit rating will make it easier to borrow money, for a mortgage for example
Earn cashback and rewards: Certain types of credit cards can give you cashback, rewards points for particular retailers or frequent flyer miles. With a rewards credit card, you collect points that can be exchanged for shopping vouchers or other gifts. Cashback credit cards offer the most flexible benefits – a percentage of what you spend is returned to you in cash
Perks for travellers: Credit cards can also be beneficial if you travel often, for example, an airline credit card could give you air miles on your spending. Using a standard credit or debit card abroad can be expensive, as many charge fees of up to 3% on foreign transactions. Travel credit cards offer better exchange rates and don’t charge you a fee or have lower fees when you use them overseas
Purchase protection: You may have an issue with your purchase, it arrived damaged, for example, or the supplier went bust and it never arrived. With a credit card, you have buyer protection for any purchases made on the card between £100 and £30,000. It means you can claim your money back from the card provider if there’s a problem with your goods or services
What do I need to be careful of when getting a credit card?
Credit cards are a form of borrowing and if mismanaged can result in financial problems:
Debt: If you’re worried you won’t be able to pay off what you owe and feel it’s safer to only spend what you have, then not having a credit card removes the risk of putting yourself into debt
You use a lot of cash: If you’re regularly withdrawing and using cash it makes more sense – and will be more cost-effective – to do this using a debit card linked to your bank account. Withdrawing cash from a cash machine with a credit card often means you’ll pay an additional fee, and the interest starts accruing immediately, making it even more expensive
You can lower your credit score: If you do not keep up with credit card payments, you run the risk of damaging your credit score. A lower credit score will make it harder to borrow money in the future
Should I get a credit card when I turn 18?
The minimum age requirement for a credit card is usually 18 but depending on the provider it could be 21.
Why is it harder to get a credit card when I’m 18? As a young person, you might have a low credit score because you’ve never borrowed money before and therefore have no credit history. Because you haven’t used credit before, lenders cannot judge how reliable you will be with making payments.
What are easy to get credit cards for young people? If you’re a young person trying to build your credit score then a credit-builder card could be ideal. Credit-builder cards are designed for people trying to boost your credit score and come with lower credit limits. If you’re heading to university then a student credit card might be a good idea. These cards come with several benefits, such as interest-free purchases for a set period of time, or rewards and perks on your spending.
Is it wise to get a credit card when I’m 18? Whether or not getting a credit card at 18 is a good idea will depend on if you use your credit card responsibly. Your first credit card will help you form your financial footprint and start to build a credit history, so it’s important to keep up with payments – so borrowing won’t be difficult later on in life.
Do I need a credit card if I already have a debit card?
Credit cards have some advantages over debit cards which might make it worthwhile to have one alongside your debit card. For example:
Offering protection on purchases: Credit cards offer Section 75 protection which means if goods and services are faulty, don’t match the description or aren’t delivered at all, you are in a better position to get your money back. Debit cards offer chargeback protection but it’s not as comprehensive as Section 75
More flexibility on spending: Debit cards only allow you to spend the money you have available in your current account or authorised overdraft. A credit card on a 0% interest deal can help you make a large purchase upfront, for example, and spread the costs over several months
Emergency purchases: If you need money urgently, such as for a new boiler or car repairs, a credit card gives you the ability to pay for it straightaway and pay the money back later after you’ve been paid, for example
What are the alternatives to a credit card?
If you don’t want a credit card, but need to borrow money in the short term (or you want an alternative for using overseas), there are other options:
Loan: A loan can give you access to funds, the benefit being you can usually borrow more than on a credit card and the repayments are fixed and structured (so you’ll know that at the end of the loan the debt is fully repaid). But unlike a credit card, you are locked into what you borrow and may face an early repayment charge if you wish to clear the debt quickly.
Overdraft: If you have an agreed overdraft on your bank account this could be a way of conveniently borrowing in the short term. Make sure it is authorised first by your bank and pay attention to the rates as it could be expensive if you are in the red for a long time.
Prepaid cards: Not a means of borrowing, but a prepaid card can be useful for budgeting and spending overseas – if you don’t want to use a credit card. You can pre-load the card before you travel with the correct currency at an exchange rate you’re happy with, and it means you do not have to take cash everywhere.
Other useful guides
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