We’re in the midst of the biggest economic downturn since the Great Depression and that means that most of us are looking for ways to save money, not spend it. We’re forgoing expensive holidays and making do with last season’s clothes as we scrimp and save every penny.
In this new era of frugality, it’s easy to see credit cards as the enemy, their easy convenience luring us into buying things we don’t need and can’t afford. But it may surprise you to learn that if used wisely, credit cards are not inherently “bad”. In fact, in certain circumstances, owning one can actually be beneficial to your financial health – even in a credit crunch.
So read on for our list of the top three advantages of sensible credit card ownership.
1. Credit cards can help you build a good credit history
If you’ve never owned a credit card, you may be feeling smug about your clever money management and lack of debt. However, that feeling may soon disappear when you actually want to buy something you can’t afford to pay for upfront, like a house.
These days, getting a mortgage is even harder than usual and a poor credit history can really limit your borrowing options. How can never having borrowed anything mean you have a “poor” credit history? According to This Is Money, a person with no debt at all is seen as less attractive to lenders than someone with a proven track record of successfully managing credit.
One way to demonstrate your ability to manage debt sensibly is to get a credit card which gives you cash back or reward points and use it to buy your groceries each month and then pay off the balance in full. That way, you’re building a good credit history and get all the enjoyment of spending your cash or reward points.
2. Credit cards can earn you money
According to Money Saving Expert, reward cards can earn you hundreds or even thousands of pounds each year in goodies, at no cost. But you must follow the golden rule. Martin Lewis explains: “Getting charged interest almost always dwarfs even the very best rewards schemes so quite simply, if you want rewards, always set up a direct debit to repay the card in full each month, so there’s NO interest.”
However, some reward cards are better than others, so shop around. Some of the best credit card cash back cards pay out £3 for every £100 you spend on them, while others let you collect loyalty points to spend on different goodies.
Use the card for all your normal spending such as petrol and groceries and that way every time you spend, you earn. But don’t forget – to really be up on the deal you need to pay off the card’s balance each month.
3. Credit cards give you extra protection
One shocking aspect of the downturn is the number of high-profile retailers who have gone out of business. Big name brands like Woolworths, Zavvi and Land of Leather have all disappeared, and when MFI went into administration, customers who’d already bought goods were left wondering whether they’d get their money back.
With so many closures it’s no wonder we feel nervous when buying goods, particularly over the internet. But this is where a credit card can really come in useful as if you pay with your plastic, you’ll actually have far more consumer protection than if you pay in cash. Under section 75 of the Consumer Credit Act, if you pay for something costing between £100 and £30,000 on a credit card your card issuer may be equally liable for breaches of contract or misrepresentations made by the supplier. This only applies to credit, not debit cards.
There are some important exceptions to this rule. You may not be covered if you buy goods through third parties, like say a holiday from a travel agent, or something through Paypal.
But the added protection that a credit card gives you when purchasing an expensive item can help with peace of mind at a time when the fate of some high street retailers remains uncertain.
With a Sainsbury’s Finance credit card you can collect Nectar points whenever you spend. 15.9% APR Typical variable.
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