A credit card is a way of borrowing so you can buy things. You then repay the money for these purchases in the future. Also, when used correctly, they can help to build your credit score.
Once you know the benefits of a credit card, as well as important things to consider, you may be in a better position to see if one’s right for you. Doing some research could also help you decide what type of card to go for.
We’ve put together this guide on credit card benefits to help you make the right decision for your financial wellbeing.
What are the benefits of a credit card?
There are a few different advantages to having a credit card. But the most important ones will depend on your own circumstances.
We’ve listed a bunch here to show how they could improve your financial situation.
Start building a credit history
You can use a credit card to start building your credit history, as long as you manage it well and keep on top of your repayments. Over time, this could show lenders you’re able to stick to your credit agreements.
Being covered for important purchases
If you have a problem with something you buy, remember that credit card purchases between £100 and £30,000 may be covered under Section 75 of the Consumer Credit Act 1974. It might be worth getting in touch with your card provider to see if they can help.
Rewards and incentives
From cashback to air miles, many credit cards come with rewards included. These can seem like a great idea - but make sure the cost of the card doesn’t outweigh any rewards you get.
Transferring a balance
If you already have a credit card with a balance on it, you could think about moving it to a balance transfer credit card with a promo interest rate. Lots of these cards come with 0% interest for a specific period and this could help you manage your debt. Learn more about balance transfer credit cards in our useful guide.
Money for emergencies
Having a credit card can help to reduce the cost of emergencies, like paying for urgent car repairs or a new boiler.
Purchase protection
With credit cards, you typically get more protection against potentially fraudulent and criminal purchases than with debit cards. If you buy products that arrive damaged or not as advertised, you may be able to claim the money back through your provider.
Handy to have
Unexpected costs can sometimes ruin your financial plan for the month. If you’re responsible and keep on top of your repayments, using a credit card means you can cover costs now and delay the repayment.
Be aware of the drawbacks
There are some disadvantages to using a credit card that you may want to think about before applying.
These include:
Potential impact on credit score
If you’re not managing your credit well, not making payments on time and regularly maxing out your credit limit, it can harm your credit score. This could make it harder to get accepted for credit in the future.
Potential credit card debt
The same habits that damage your credit score could also put you in debt if you’re not managing your spending properly.
Also, if you’re not fully aware of credit card fees, this could increase the chance of you falling into debt. You might want to think about researching the card terms, conditions and fees to avoid taking on more than you can handle.
Ways to use a credit card
Once you’ve got your card, you should also consider how you’re going to use it.
Make a plan
Need to transfer a balance from another card? Looking to build or rebuild your credit? Planning a big purchase? Asking yourself these questions could help you decide why you’re considering a card and which one suits your needs.
See if there’s an app
Many providers (including Vanquis) have a mobile app which you can use to manage your credit card. These often allow you to make payments, keep track of your transactions and stay on top of things like personal details and security.
Set up a Direct Debit
Once you’ve got your card and your account’s up and running, you may want to think about setting up a Direct Debit to make regular payments. This way, they’re taken automatically so you shouldn’t miss any.
Work out a payment amount
If you can, it’s a smart idea to pay off more than just the minimum monthly amount from your credit card. Repaying your statement balance in full might also be worth considering - if it’s affordable.
Spend within your means
You should only use your credit card when you have a plan for how you’re going to pay the amount borrowed back. Having a large available credit limit might mean you’re tempted to use your card for a big purchase. But the longer it takes to pay this back, the more likely you are to be charged interest. Spending more than you can afford could also mean you miss a payment or go over your credit limit. And this often means penalty fees and a negative impact on your credit score.
FAQs
What can I use a credit card for?
From large purchases (where you can spread the cost over time) to covering unexpected bills, credit cards allow you to repay these amounts when you get paid.
With some, you can consolidate and manage your debts - like balance transfer credit cards. There are also cards called credit builder credit cards. These can help you boost your credit score or repair a damaged one.
Doing your research to work out which card suits you best is very helpful.
Is a credit card safe?
In a nutshell, yes - there’s security in place to make sure credit cards are safe to use. Compared to debit cards, there’s often more cardholder protection on all purchases (should they be fraudulent or criminal).
That said, credit cards do come with their own risks if your spending isn’t managed correctly. If you don’t stay on top of repayments - or end up maxing out your credit limit - repayments can quickly mount and you could find yourself in debt. So, make sure you’re only spending what you can afford to repay.
Is a credit card right for me?
Although a credit card may help you manage unexpected bills and purchases, there are other options. For example, lower interest loans and overdrafts that may offer a similar solution.
Credit cards are extremely versatile though, so it’s a good idea to consider all credit card options - as well as loan alternatives - to see what’s best for you.