Why it sometimes makes sense to buy using your credit card
There are several reasons to consider paying with a credit card, says Ruth Jackson-Kirby. Here are just a few.
The days of bumper cashback offers or fantastic rewards with your credit card are long gone. But there are still several good reasons to pay with plastic. One is the protection you receive thanks to Section 75 of the Consumer Credit Act. Pay for something costing between £100 and £30,000 on a credit card and the card provider is as liable as the seller if something goes wrong.
Credit-card firms are currently swamped with Section 75 claims, thanks to Thomas Cook. “The 178-year-old travel agent went into administration in September, prompting thousands of customers who had booked trips on credit cards to submit refund claims,” notes Sam Barker in The Daily Telegraph.
You can put a claim in with your credit-card provider if the thing you purchased never arrives or isn’t what it should have been. For example, you could claim for flights you bought if the airline goes bust, or a car that breaks down days after you bought it. You even get protection for the whole cost if you only paid the deposit on your credit card.
Boost your credit rating
Another reason to put some of your spending on a credit card is that it improves your credit rating. It is a myth that a person who has never borrowed has the best credit rating. Lenders want to see that you are a reliable borrower; if you’ve never borrowed, they don’t know you’ll pay them back.
Using a credit card and repaying the balance in full each month – or at least never missing a minimum payment – will bolster your credit rating.
There are also financial benefits to spending on a credit card. If you can’t afford to buy something outright then an interest-free credit card is still the cheapest way to borrow. For example, Sainsbury’s Bank is offering 27 months of 0% interest for new spending. Just make sure you clear the debt before the interest-free period expires, otherwise you’ll end up paying 20.9% interest.
Divide your debt by the length of the interest-free period and then set up a direct debit for that amount, so you don’t miss a payment and clear the debt in time. “You need to make at least the minimum payment each month or you may lose the 0% deal and be charged a fee,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown, in The Financial Times.
If you don’t need to borrow, then get paid to shop with a cashback credit card. The return on these cards isn’t as good as it once was, but it is still reasonable. The top-paying card is the Amex Platinum Cashback credit card. It has a £25 annual fee but a 5% cashback rate for the first three months; the rate then falls to 1.25%.
But make sure you clear your balance in full each month, otherwise the 22.9% APR interest will quickly cost you more than you are earning in cashback.