You may be wondering, “Why should I get a credit card? I can withdraw money for free with my debit card. And I don’t want the temptation to spend more than I can afford.”
We’ve all heard horror stories of people whose lives have been ruined by massive credit card debt. And there are situations (like withdrawing money from an ATM) where a debit card is handier.
But the benefits of using a credit card – alongside your debit card – are too good to pass up. Here are the top seven benefits you should know:
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1. Build up your creditworthiness
Using a credit card is an easy way of boosting your creditworthiness.
Creditworthiness is just a way of deciding how worthy of borrowing money you are, based on your history of borrowing. When you apply for credit or a loan, lenders want to be sure they can trust you to repay what you owe. Showing that you can pay off the bill on your credit card every month is an easy way of proving to lenders your ability to manage your personal finances.
It’s imperative to have a strong credit history if you want to get a mortgage. Buying a house might seem today like a dream for the distant future, but the longer you’ve had a history of making repayments responsibly, the more trustworthy you’ll seem to potential loan-sellers.
2. Interest-free loans
A credit card is hands-down the cheapest way to borrow money. True, the bank of mum and dad might not charge interest, but you’ll still be burdened with a debt of gratitude!
Some cards offer up to 31 months at 0% interest – that means you can borrow money and pay absolutely nothing in interest – just as long as you pay it back within 31 months.
This might be useful for things like car insurance. You know it’s cheaper to pay the whole year in bulk rather than in monthly instalments, but you don’t have the money in your account to make the payment. So you take out the loan on your credit card, and pay it back over a 12 month period. Not a penny of interest – plus you’ve saved all that money by paying your insurance up front.
3. Get goodies
Some cards offer rewards for your everyday spending. This can be in the form of:
- Avios points (saving you money on flights)
- Childcare vouchers
- Nectar points
- Amazon vouchers
Who doesn’t love free stuff? But be careful – such goodies can lure you into spending more than you can afford. If you’re the type to go mad for a bargain, splurging on stuff you really don’t need, then think carefully about getting a card that rewards big spending. Such cards require you to spend a lot to get the goodies – so they might be best for that ‘when I get my promotion’ wish list.
4. Renting a car or staying in a hotel
Here’s one that might surprise you – renting a car or staying in a hotel can be very difficult without a credit card. Credit cards can be used to hold the deposit you put down to rent a car or stay at a hotel as they tend to hold money on it for a period of time, if this is on your debit card this leaves you without that cash for that period of time.
It’s good to have the security of having a credit card on you, to make sure you won’t be turned down or without cash.
I can forgive you if you haven’t heard of this – what a word! The concept behind it, though, is even better.
Say you’ve got a credit card with 31 months at 0% interest. You could actually make money off this. How? By borrowing money and investing it.
This isn’t for everyone – only those who don’t need the credit card to borrow for personal use. But why not get a credit card purely for extra dosh? Invest well, pay off your credit card on time, and keep the extra interest for yourself.
Be warned: You should not engage in stoozing if you are already in debt, and certainly not before doing proper research. Read MoneySavingExpert’s guide to stoozing to get the info before leaping into anything.
6. Emergency funds
God forbid your phone and laptop get stolen in the same week. If they do, you’ll probably need to replace them ASAP – but where to get the funds? It’s not payday until next week, meaning you need access to money a little quicker than planned. Where do you turn to?
Your credit card. You can get the money you need instantly, and pay it back from your savings over a few months. As long as you have a card that allows you to borrow on 0% interest for a few months, this’ll cost you nothing – beyond the massive cost of replacing your phone and laptop, of course!
7. Protection of your purchases
It is enshrined in law that credit cards (but not debit cards) must provide protection for purchases costing between £100 and £30,000. This means you’ll get your money back if any of the following happen:
- The company you’re buying from goes bust
- Your order doesn’t turn up
- Your order is damaged or faulty
You don’t even need to pay the whole sum on your credit card – just make sure you’ve used it to make some of the payment, and the rest will be covered.
Say you’re buying a car. You pay a £50 deposit using your credit card, and the rest in cash. But the dealer goes bust before you get your new car. The law says your credit card company still has to refund you the full price of the car. When making big purchases, a credit card is the way to go.
Now that you know the overwhelming benefits of getting a credit card, you’ll probably be scrambling to apply for one.
But beware – applying for a credit card and getting rejected harms your credit report. A free Credibble account allows you to see your chances of eligibility before you apply, and gives personal actionable insights so your file is in its best shape before you apply.
Credibble offers two fabulous solutions
If you’re preparing to take a mortgage, never apply until you’ve tried our unique and FREE Credibble Home app. Our smart technology will tell you what you need to fix so you avoid rejection. The app predicts when you will be able to buy, for how much and tracks your month-by-month progress to mortgage success. We’ve even added your own mortgage broker, so you get the best deals available.
More focused on your credit rating? Well, get started for free with Credibble’s 24- Factor Credit Check to truly help you improve your creditworthiness and how lenders view you. (Remember: lenders don’t use your credit score! We’ll show you what lenders look for and how to get your credit report in the best shape possible).
Last updated by Robert Edwards, May 2022