Remember when no one compared car insurance online? Amazingly when it comes to credit cards, the UK is still labouring in the past. Only a very small proportion of us research a credit card online and even fewer switch – even when there are serious savings to be made worth hundreds or even thousands of pounds.
8 Reasons Why You Need a Credit Card
1: Peace of mind
Credit cards come with handy, free additional consumer protection, known as Section 75. So, if a purchase is faulty, isn’t as described or simply doesn’t turn up you can turn to your credit card provider for financial compensation as well as the retailer on any purchase between £100-£30,000.
2: Free borrowing
There is no cheaper way to borrow than with the right credit card. Whether you are wanting to clear existing debt or build up new debt you can borrow interest-free for well over a year with a credit card that offers 0% on purchases. Find the right low-cost card for you with credit card comparison service.
3: Earn free money
Many credit cards reward you for using them, either with money or points that you can use to buy anything from a frozen turkey to a flight to Turkey. Why would you shop with cash or a debit card, when for the exactly same amount of effort you could be earning rewards or cold, hard cash?
4: Cheap money abroad
Savvy travellers carry plastic. Not only does it give you extra consumer protection (Section 75 covers foreign purchases as well as domestic), a credit card will also save you money. When you use the right credit card abroad you don’t have to pay any commission and get the best possible exchange rate. Find out more about taking your plastic abroad.
5: Build a good credit report
A good credit report will help you buy a house, a car and get you the best interest rates on both. A bad one will stop you getting pretty much anything you can’t pay up front for. Getting a credit card and using it sensibly is the best way to build a credit record or rehabilitate a bad one.
6: Free insurance
Some credit cards come with free purchase protection for a short period after you buy. This means that if the item you bought is lost or stolen within a set time – usually around 90 days – you get your money back.
7: Protect your money
If you lose your wallet full of cash the chances are you will never see that money again. If you lose your credit card, provided you were careful and weren’t swinging it around your head screaming your pin number, you won’t be liable for money spent on it after you lost it. Just make sure you report the loss swiftly and are always careful with your pin. If your credit card company can prove your were negligent they won’t pay up.
8: It’s the only way to pay
Some companies will still insist on a credit card when taking payment, for example when you make hotel reservations or rent a car. This is because with a credit card they get greater assurance that they can recoup any additional costs you run up.
How Do I Choose the Right Card for Me?
To save hundreds or maybe thousands, you just need to find out which is the card that is likely to save or make you the most money. However, you also need to bear in mind which cards you’re likely to be accepted for.
And there’s the rub. Until now it hasn’t been easy to do either of these things. It’s not easy to understand how much you’d save or whether you’ll be accepted for a card. Add to that the fact that being declined can hurt your credit rating and we start to understand why people aren’t switching cards – which is why we built our credit card comparison service.
Our advanced credit matching technology is a one stop solution for saving money using credit cards. It will tell you which credit cards you are likely to qualify for and how much money you’d be likely to save – in seconds.
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The Different Types of Credit Card
This is the card to use to cut the interest on your existing debts. With a balance transfer credit card you move balances you’ve accumulated on other credit cards over and enjoy 0% interest for a set period – usually for over a year but in many cases two.
It’s not completely free, there is a balance transfer fee to pay when you initially move the money. This is usually 2%-3% but keep an eye on it, some of the longer balance transfer deals have higher balance transfer fees. So, when choosing a balance transfer card work out how long you need the interest free period to be and then look at the balance transfer fee. You might be able to save even more money by going for a shorter 0% period with a lower balance transfer fee. our advanced credit matching technologywill help you find the card that you’re most likely to be accepted for, and calculate which should deliver you the biggest saving.
You can spend on these cards, just as with a normal credit card, but you will pay interest on the money you use for purchases so it’s best to keep things simple and have a separate card for spending. Or use a balance transfer and purchases card, see below. You can read more about how to save money with a balance transfer credit card here
This is the simplest of all the credit card types. It is the card for cheap shopping. With a purchase card you’ll get a 0% interest period for several months, this allows you to spend without accruing any interest even if you don’t pay back your balance in full each month.
This is the card to use if you want to spend a lot of money and not immediately pay it back. But clear the balance before the 0% period runs out as the standard rate on these cards is high. If you end up paying interest you will quickly wipe out the initial benefit of the 0% rate. So, either pay off the debt or move it to a balance transfer card before the 0% period ends. You can read more about spreading your costs here
Balance Transfer and Purchase
If you have built up some credit card debt AND want to spread the cost of some big purchases then a balance transfer and purchase credit card could be the answer. These cards offer a 0% interest period on both debt transferred from other credit cards and new purchases for a set period of time.
The drawback is that the 0% periods are shorter than if you went for just a balance transfer card, or just a purchase card. If you have a large amount of debt that you can’t clear within the 0% period on a balance transfer and purchase card consider going for a pure balance transfer card with a longer 0% period and a separate purchase card.
If you clear your credit card balance every month, and have no plans to build up any debt, a cashback credit card is a good option. These cards reward your good spending habits by giving you a percentage of your spending back in the form of cash. Typically, you get 1%-5% cashback.
But, these cards tend to have high interest rates so are only worth using if you are going to pay back your balance in full each month before interest charges kick in. You can read more about earning money with a cashback card here.
An alternative option for people who clear their balance each month is a rewards credit card. Rather than paying you back with cash these cards offer various forms of rewards points in return for using them. These can range from points to spend at the supermarket to airmiles that you can use to buy flight tickets with.You can read more about maximising your rewards here
These are the credit cards you get offered at the till in various stores. They often have enticing introductory offers such as 10% off your shop that day or extra discounts on sale items. But, the big drawback is the extortionate rate of interest – 32%APR isn’t unheard of. So, in general, you should avoid store cards like the plague. Find a better option with our credit card comparison table.
The only time you should consider using one is if the initial discount is particularly good – 20% off a big clothing spend for example. In which case, take out the card and pay for your shopping then while you are still in the store ask for the payment phone number. As soon as you get home ring up and clear the balance and close the account. Just be aware that this will appear on your credit record and could affect other credit card applications.
These cards seem lovely, you can donate to charity with no effort while you shop. They work in a similar way to a cashback card. As you spend money with the card you earn a percentage back, but rather than you getting that money it goes to charity.
The problem is you hardly give any money to charity with these cards. Typically, the card companies donate 25p to charity for every £100 you spend, that’s a cashback rate of 0.25%. In comparison, if you used a standard cashback credit card and then donated all the money you earned from the card to charity you could donate around £1.25 of every £100 you spend. You can read more about why you should get rid of your charity credit card.
Heading abroad? Take a credit card with you that’s specifically designed to cut your holiday costs. With a standard credit card you will pay an additional fee if you use it while you are abroad, typically around 3% of every transaction. But with an overseas spending credit card these fees are much lower, or non-existent, making them the cheapest way to spend when you are on your holidays. You can read more about the best cards for overseas spending here.
Which Credit Card is Right for You?
1. Do you have existing credit card debt?
- YES – Go to question 2
- NO – Skip to question 3
2. Do you want to spend and save interest on outstanding debt?
3. Are you looking to spread the cost of a big purchase?
- YES – A 0% purchase card will let you spread the cost for free.
- NO – Go to question 4.
4. Do you clear your balance in full every month?
5. Do you travel abroad regularly?
- YES – An overseas spending card will cut your costs.
- NO – Return to Question 4.
The Five Golden Rules of Credit
Set up a direct debit
The first rule of good credit is never to miss a payment. Miss a payment and you’ll face penalty fees, extra interest and the possibility of losing any 0% deal you may be enjoying. So, set up a direct debit for at least the minimum payment to ensure you always pay on time. Ideally, set the direct debit to take the cash five working days before it is due, that way you benefit from your cash for as long as possible but don’t run the risk of the money not arriving with your credit card provider in time.
Minimise your applications
Every time you apply for a credit card the card provider checks your credit record to see if you are a good borrower. This credit check is recorded on your file, and if you are applying for lots of cards, it is a red flag for lenders. They think lots of applications either means you are a bad borrower who can’t get anyone to lend to them, or you are being approved by all these lenders and therefore amassing lots of credit that you may not be able to pay back. Our advanced credit matching technology can help you halve the number of credit card applications you make. Enter a few details and, without putting any footprints on your credit record, it will tell you which credit cards are most likely to accept your application.
Use your card
It seems obvious, but many credit cards lie unused while their owners spend with their debit card or cash. Your credit card can’t help you improve your finances unless you use it. Flex that plastic and you can benefit from 0% borrowing, additional consumer protection and, depending on your card, cashback or rewards. Also, using your card and then paying back the money sensibly will help you build up a good credit record, allowing you to access better credit card deals and interest rates in the future.
Cancel cards you don’t use
If you have any old credit cards that you no longer use, cancel them. Simply cutting them up and forgetting about them is not good for your credit record. When a credit card provider is deciding whether to lend to you, and what limit to put on your credit card it will look at how much credit you already have access to. This includes existing credit card limits and overdrafts. So eliminate any credit you don’t use by cancelling old cards, reducing overdraft limits, and if you are in the process of clearing a debt on a balance transfer card consider lowering the limit on the card to reflect the debt on it.
Know your deal
Make sure you know your credit card. Be clear on what the interest rate is, what fees it charges, and if you have a card with an introductory deal make sure you know exactly when the deal ends. If you don’t know these details about your credit card you risk accidentally paying interest or fees through ignorance. Set up a reminder or make a note in your diary six weeks before any 0% deals are due to run out. That way you can either make sure the balance is cleared or apply for another balance transfer card, so you don’t end up paying interest.