Getting the best credit cards
Top 9 reasons to get a credit card
By Rob Goodman
Article 1 of 2
Top 9 reasons to get a credit card
Credit cards aren't just a useful borrowing tool – they can also come with other benefits.
1. Cash back
Some credit cards will pay you a percentage of what you spend as tax-free cash, which is usually credited to your account once a year. But they're only worth considering if you pay off your credit card bill in full each month – otherwise the interest will outweigh any rewards.
Which? Money Compare: Cash back credit cards – find a great deal with Which? Money Compare comparison tables
Like cash back credit cards, reward credit cards give you something back each time you spend on them but, instead of cash, you receive points or vouchers. Most offer a more generous points allocation when you spend in associated stores, so if you're not loyal to a particular shop, or don't want your rewards in vouchers, a cash back card may be a better option.
Some retailer or airline-branded credit cards offer discounts, for example, on flights or at in-store cafés. Be careful with travel company credit cards though – many add a surcharge if you want to pay by credit card, so the discount is not as generous as it first seems.
4. Protection under section 75 and chargeback
If you use a credit card to pay in full or partly for goods or services costing between £100 and £30,000, you get valuable protection under section 75 of the Consumer Credit Act. Even if section 75 doesn't apply, for example, if the total cost of the purchase is less than £100 or more than £30,000, you may be able to put in a claim under the industry-agreed chargeback system.
5. Cut costs on overseas spending
Most debit cards charge you a foreign loading fee if you use them for purchases abroad. This is also the case for most credit cards, but some will waive this fee on transactions made overseas.
Which? Money Compare: Best credit cards for spending abroad – find a card to use on holiday with Which? Money Compare
6. Boost your credit score
If you have a poor or limited credit history, you may struggle to access the best credit deals. But some credit cards are designed specifically to build your credit rating so that you can access better deals in future. Bear in mind that these are likely to have lower credit limits and higher interest rates than other options, so you should make sure you pay the bill in full every month.
Find out more: How to improve your credit rating – more tips to boost your credit score
7. Protection if you lose your wallet or purse
If you lose a wallet or purse full of cash, it's unlikely that you'll be able to get it back. However, if you're unfortunate enough to fall victim to card fraud, you have legal protection to ensure you don't lose out financially. Your bank must refund any fraudulent payments immediately unless it has evidence that there is reason to refuse a refund.
8. Track your spending with 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.
Find out more: Personal finance software – see which software is rated as a Best Buy
And finally, for very organised credit card users
9. Earn interest
Follow our five steps to earn interest on your shopping:
- Step 1: apply for a card that offers a decent 0%-on-purchases deal.
- 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. This leaves you with the interest accrued in the interim in the savings account on the amount you end up paying off.
Three ways not to use credit cards
There are some things you shouldn't do with a credit card, including:
- Paying 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 and on time. The same can go for buying gift cards and vouchers.
- Paying 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'll have to pay a fee to use one.
- Withdrawing cash: cash withdrawals attract a withdrawal fee, as well as a higher APR, and don't enjoy the interest-free period available for other types of spending. They are also recorded on your credit report and can be viewed by lenders as a sign of financial stress, something that could affect your ability to get credit.
- Last updated: July 2016
- Updated by: Rob Goodman