We look at the top reasons why you might benefit from paying with a credit card.
In the UK, credit cards are regarded by many with a degree of suspicion as an easy way to get into debt. Figures from the UK Card Association show that debit cards still account for the overwhelming majority (71%) of our card spend. But does our commitment to debit mean we could be missing out on some less obvious benefits of credit cards?
The latest figures out there show that during November 2016 there were 999 million debit card transactions and 290 million credit card transactions in the UK. That means that you are more than 3 times more likely to pay by a debit than a credit card. However, the picture changes slightly when you look at the sorts of purchases we’re making. Although we spend more in total on debit cards, the average transaction value is smaller — £40.07 compared to £55.03 on credit cards.
Although we tend use credit cards for bigger purchases, using a credit card does not always mean that you are spending money you don’t have. Used responsibly, it can simply be seen as an alternative method of payment with its own benefits and drawbacks.
So why choose to pay with your credit card?
- Your credit report – using your card responsibly and paying the balance in full each month will help you build your credit score. The older the credit card, the more reliable you will appear, and the age of the account also factors positively into your credit score.
- Rewards and cashback – different cards offer different kinds of perks. These include Avios points that can be exchanged for plane tickets, points that can be exchanged for goods or services, and even tax-free cashback, which means you get a small percentage of your spending back.
- Purchase protection – if you use your credit card to pay in full or in part for goods and services valued between £100 and £30,000, you are protected under Section 75 of the Consumer Credit Act. This means you might be able to claim for a faulty or damaged product.
- Fraudulent use protection – credit cards also give you protection against anyone else using your card without permission. The bank has to refund any fraudulent payments immediately.
Whilst these perks are a great way to get a bit extra from your everyday spending, they can be easily outweighed by bad habits such as missing payments or withdrawing cash. These not only incur fines, but can also damage your credit score.
If you decide to apply for a new credit card, make sure that your credit score is ready by checking your report regularly (Try out our 5 minute monthly checklist). You can also benefit from checking your eligibilty for a new card before you apply which you can do in the Offers section of your ClearScore account where you’ll find credit cards selected for you, with eligibility scores that show you your likelihood of acceptance.