10 reasons to have a credit card

Credit cards tend to hit the headlines for negative reasons such as steep interest rates - but play your cards right and you could increase your wealth by paying on plastic rather than with cash.

Credit card in cafe with woman smiling and a take away coffee
Offers such as cashback on your purchases and generous reward schemes, for example, can help you to make big savings. And that’s not the only benefit - paying with a credit, rather than a debit, card can also afford you greater consumer protection.

Remember, however, that you should always pay off your credit card balance in full each month, otherwise the interest charged is likely to outweigh any benefits.

Here are moneysupermarket.com’s top 10 reasons to take out a credit card.

1. Cashback

If you pay off your bill in full every month, a cashback credit card can be a great way to get more for your money as a percentage of the amount you spend will be returned to you once a year, either as a cash payment or a reduction in your bill.

The best cashback card on the market at the moment is the MBNA American Express Card with Cashback, which gives you up to 1.5% cashback on all purchases. It has a representative annual percentage rate (APR) of 18.9% variable.

Other cards worth a look include the MBNA Visa Card with Cashback and the American Express Platinum Cashback Card, which gives new customers up to 5% cashback in the first three months. The MBNA card has a representative APR of 18.9% variable while the American Express card has a representative APR of 19.9% variable.

2. Reward schemes

Reward credit cards, like cashback cards, give you points or vouchers for every pound you spend, which can be redeemed on your shopping. Market-leading rewards cards include the Tesco Clubcard Credit Card, which gives you one point for every £4 spent, plus Clubcard points when shopping in Tesco stores. It has a representative APR of 16.9% variable.

The Marks & Spencer Credit Card is also attractive. It gives you one point for every £1 spent in store and one point for every £2 spent elsewhere. This card has a representative APR of 15.9% variable.

3. Section 75 protection

If you pay for goods or services costing between £100 and £30,000 on a credit card, you are protected by section 75 of the Consumer Credit Act should the goods or services purchased prove unsatisfactory or never arrive.

Consequently, even if the retailer in question refuses to offer a refund or replacement, or goes out of business, you can apply to your card provider for compensation instead.

4. Chargeback

Even if section 75 doesn't apply, for example, because the goods bought are worth less than £100, you may also be able to put in a claim under the industry-agreed chargeback system.

To benefit, you will need to prove that there has been a breach of contract and make a claim to your card company within a certain time limit.

Visa, for example, limits claims of this kind to within 120 days of you noticing the problem.

5. Overseas charges

Most debit cards charge you a foreign loading fee if you use them to make purchases while abroad. Most credit cards do too, but there are some exceptions.

Halifax’s Clarity card, for example, doesn’t have any foreign exchange fees and doesn’t charge for cash withdrawals either. However, you will be charged interest on the amount withdrawn even if you clear your balance in full. It has a representative APR of 12.9%.

Both the Saga Platinum card and the Post Office credit cards have no foreign exchange loading fees, although they charge a minimum fee of £2 and £3 respectively for cash machine withdrawals. The Saga Platinum card has a representative APR of 11.9% variable while the Post Office card has a representative APR of 16.9% variable.

6. Boost your credit score

Borrowing too much and not making repayments on time will undoubtedly damage your credit score. However, having no credit history can be equally damaging.

After all, 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-called credit builder cards aimed at people looking to improve their credit ratings include Capital One Progress and Barclaycard Initial. Both cards have a representative APR of 29.9% variable.

However, you must be careful to pay the balance off in full every month as not only will this be more beneficial for your score, but the interest rates on these cards are also very high.

7. Theft protection

If you lose a wallet or purse full of cash, it's likely that you won't see that money again. But as long as the loss or theft was not caused by negligence on your part, you won’t be liable for fraudulent use of your card.

8. Better budgeting

Many of the personal finance software packages available over the Internet allow you to import your online credit card statements.

You can then use the software to analyse your spending habits and pinpoint areas where you can save money, which is a great advantage for those on a tight budget.

9. Earn extra savings interest

If you are very savvy, you can even use a credit card to boost the savings income you receive.

To do this, you need to first apply, and be accepted, for a credit card offering 0% on purchases for an introductory period. Good options include the Marks & Spencer Credit Card at 0% for 15 months with a representative APR of 15.9% variable and the Tesco Clubcard Credit Card at 0% for 13 months with a representative APR of 16.9% variable. Then you will need to set up a direct debit to cover the minimum payment required each month.

You can then put all your shopping on the card, allowing cash in your current account to build up because you aren’t spending it. You can then move this money into a competitive easy-access savings account, such as Nationwide's MySave Online Plus, currently at 3.05%, so you can earn interest on it.

Interest can keep building on your savings until you pay your eventual credit card bill in full a month before the interest-free period comes to an end. You’ll need to be very disciplined to make cash this way, as if you forget to make minimum payments or don’t clear your balance during the interest-free period, you will quickly wipe out any interest made on your savings.

10. Credit card-only transactions

Certain transactions, such as renting a car, confirming a hotel reservation and paying for tickets to big sporting events such as the 2012 Olympics can only be made using a credit card. A credit card can also be very useful for covering company expenses (that are often reimbursed on a monthly basis) without leaving yourself short.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

We’re free, independent and compare all UK credit cards, as well as offering exclusive deals you can’t get anywhere else.

Contact moneysupermarket.com at Moneysupermarket House, St David’s Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011

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