The 5 benefits of paying with a credit card

There are many practical reasons to use a credit card. Unlike debit cards, a credit card can help you to build up your credit score, provided you are responsible with making repayments. You can also make large purchases with the peace of mind that payment protection provides and even earn rewards with some cards.

But it can still be confusing to understand exactly why you should opt for paying with a credit card, as well as getting a clear picture of your repayment terms and obligations. We look at the main benefits of paying with a credit card and some other important things to be aware of.

Credit cards provide you with purchase protection on purchases made for between £100 and £30,000. This is thanks to legislation known as Section 75, Consumer Credit Act, 1974. What this means is that if something goes wrong with a purchase you make with a credit card, you can request a chargeback.

This includes if a product doesn’t arrive or if it’s faulty and the company refuses to issue you a refund, or if a company goes out of business. On this last point, a good example is if you book a holiday and the hotel or airline you book with goes bust. In this kind of situation, credit card purchase protection offers you financial peace of mind that a debit card doesn’t.

Making timely monthly repayments on purchases you make with your credit card allows you to strengthen your credit score.. From applying for car finance to taking out a mortgage, a healthy credit score will give you access to more credit offers at the best rates.

Most leading credit card providers offer interest-free periods to pay back what you spend. This allows you to make purchases without worrying that you will incur interest fees. In comparison, most overdrafts - another popular credit option - carry considerable interest charges.

Interest-free periods tend to be either for a set number of days each month but they can also be for a period of continuous months. For instance, a card provider might offer a 12-month interest-free period when you sign up. This can be especially useful for big purchases that you want to repay in instalments over a number of months.

Some credit cards offer you rewards and even cashback when you pay for something. Popular cards reward you for travel bookings or making everyday purchases like the weekly food shop or your morning takeaway coffee. There are also credit cards that offer cashback rewards, typically anywhere from 1% to 5% on your buys. So it can quite literally pay to use a credit card frequently instead of your debit card.

Many credit cards now come with additional perks. These can include travel, medical and home insurance; airport lounge and VIP area access; no or low fees on foreign exchange transactions; and a wide range of others. These additional features can help provide peace of mind and, in the case of extras like airport lounge access, nice little luxuries to look forward to.

While using a credit card provides you with these five great benefits, it’s important to be responsible with your repayment obligations to enjoy them to their fullest.

When you use a credit card, you’re basically using the card provider’s money to make purchases which you then have to pay back. It’s generally once a month that you make a repayment.

You usually have two options when making repayments. One, you can usually choose to make the full repayment of what you have spent with your credit card that month. Two, you can make the minimum repayment that your credit card provider requests. If you make the full repayment within an interest-free period, you pay back exactly what you spent with your credit card. If you opt to only make the minimum repayment, you’re probably going to incur interest fees on your account.

Your credit card provider should let you know from the outset of your contract with them what interest terms you’d be subject to. If not, be sure to clarify this when looking for a credit card provider as well as the interest-free period that you can take advantage of. The most important thing, though, is to make at least the minimum payment on time. Late payments can negatively affect your credit score. Better still to make full repayment if you can, so you don’t incur any interest charges.