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.

Some credit cards give you cash back when you shop

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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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. 

Advertisement
Advertisement - Article continues below

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.

Advertisement

Recommended

Visit/505568/holiday-cash-debit-and-credit-cards-for-cash-withdrawals-aborad
Features

The best debit and credit cards to use on holiday abroad

Sarah Moore picks the best credit and debit cards to use for your holiday cash.
30 Apr 2019
Visit/personal-finance/601053/coronavirus-how-to-get-your-money-back-if-your-holiday-is-cancelled
Personal finance

Coronavirus: how to get your money back if your holiday is cancelled

Have you had an upcoming holiday cancelled because of coronavirus? Ruth Jackson-Kirby explains how to get your cash back.
1 Apr 2020
Visit/economy/small-business/601073/furlough-what-does-it-mean-and-how-does-it-affect-me
Small business

Furlough: what does it mean and how does it affect me?

Many companies have “furloughed” employees after they have shut down because of the coronavirus. But what does furlough mean and how does the scheme w…
30 Mar 2020
Visit/personal-finance/mortgages/601045/coronavirus-what-it-means-for-your-mortgage-or-your-rent
Mortgages

Coronavirus: what it means for your mortgage or your rent

Ruth Jackson-Kirby looks at all the key questions for owners, renters and landlords affected by the coronavirus crisis.
29 Mar 2020

Most Popular

Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/economy/small-business/601073/furlough-what-does-it-mean-and-how-does-it-affect-me
Small business

Furlough: what does it mean and how does it affect me?

Many companies have “furloughed” employees after they have shut down because of the coronavirus. But what does furlough mean and how does the scheme w…
30 Mar 2020
Visit/investments/stockmarkets/601068/buy-stocks-for-the-long-term-but-buy-very-carefully
Stockmarkets

Buy stocks for the long term, but buy very carefully

After the wild ride of the last couple of weeks, equities are no longer expensive. But if you do decide to buy, be very, very careful indeed, says Mer…
30 Mar 2020