Wednesday, 31 October 2012

Should I Get a Credit Card?

There are 2 kinds of people who use credit cards. There are those who use them and then pay them off in full every month, and then there are those who run up a full balance and spend years paying them off slowly.

Which one are you?

If you're the latter, then read this post first and become the former instead - Credit Card Maths

So what use is a credit card then?

Credit Cards can be handy things to have. Here's 5 things you can use them for:

1. Stoozing

Get a credit card with a 0% deal. Take the money off the card and stick it in a high interest account 'till the deal ends. Withdraw the money, pay the card balance off and pocket the interest.

2. Interest Free Loan

Can't quite afford a high priced item? Going to stick it on your credit card anyway? Pay off the balance in full each month for interest free borrowing. Read the Credit Card Maths post to see how it works.

3. Cashback Cards

Many cards pay anything up to 5% cashback. Use the card for all your spending each month, remembering to pay off the full balance each month, and get paid for using your card!

4. Points make Prizes

Supermarkets now offer credit cards to their customers, and these are nearly always linked to the supermarket's loyalty scheme. For every £1 you spend in store, you get so many points. The better ones give you points when you use the card elsewhere too. 

It usually takes a significant amount of spending to generate enough points for any meaningful money off vouchers, but remember, supermarkets nearly always have some sort of deal that can be used where the points are worth more - e.g. on the run up to Christmas many supermarkets give you double points for purchases, or they will double the value of your vouchers to encourage you to spend more in their store.

There are also non-supermarket credit cards that have loyalty points schemes as well.

5. Consumer Protection

Here in the UK, we have something called the Consumer Credit Act (CCA). Back in the 1970's, hire purchase really took off. Your local store could sell you a big telly and you'd pay it off monthly. The problem came if there was something wrong with what you bought, because the money was still owed to a 3rd party.

Section 75 of the CCA made the creditor equally liable with the retailer for faulty goods or services, and this also applies to credit cards. So if you buy something for more than £100 on your credit card and there's something wrong with it, even if the original retailer has gone bust and disappeared, you can still claim your money back directly from your credit card. 

This leads me onto:

6. Chargebacks

This applies worldwide under various local laws. If there is a dispute with a retailer over an item, provided documentary evidence can be supplied to support your case, a payment can be reversed in a process called a chargeback, where the money is returned to your account.

7. Going Abroad

A credit card is more likely to be accepted in a foreign country than your native bank's debit card. Also, if you hire a car, you may have difficulty doing it with a debit card. The hire company may want to take the full deposit off your debit card (if they'll do it at all), whereas on a credit card they will request an authorisation for a minimal amount which is then removed when the car is returned.

So all in all, credit cards aren't all bad. Provided you remain disciplined in the way that you use them, they do have their uses.


  1. I think everyone should get a credit card as soon as they become of age, and are financially responsible enough to understand the significance of having debt. If some people are nervous about their spending getting out of control, they can sign up for pre-paid credit cards first, which sort of works like a gift card where you pay in advance and then spend the balance afterwards so you can never spend more than what you have. I think if nothing else, having a credit card helps boost one's credit history (^_^) And the sooner one starts building their credit history the better their chances are in the future of getting a mortgage, finding cheap car loans, etc... I think credit bureaus like Experian and Equifax also exist in the UK.

    1. At first I thought that was just a daft idea giving such young adults a credit card, but on reflection, I think I understand where you are coming from, and perhaps people should experience debt and possibly problems with debt while their lives still have no strings attached. It's far easier to extricate yourself from debt when you don't have a mortgage to pay and dependents to support.

      And yes, Experian and Equifax are the 2 main credit reference agencies over here too.


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