Very Green Q: What is the point of credit cards?

Cointreau

Hi there, I know this is incredibly green, so apologies! I'm fresh out of university, have always used my debit card and have never felt the need to open a credit card (I suppose that my student overdraft played that role). Now, i'm renting, so that money goes out the day after i'm paid. Bills are divided between four so are never enormous and I don't really have any other large purchases on the pipeline. Anything expensive I fancy I save up for. So should I get one just to build up my credit rating, or is that a myth too? I just can't really see the appeal of getting one, so I just thought I would come here and ask if there are any other advantages i'm not aware of. Many thanks!

molerat

Consumer protection on purchases.
Cashback on purchases with some cards.
If you need something the day before payday you can buy it straight away.
If used sensibly they are a useful tool but if you cannot trust yourself not to spen spend spend then steer clear.

exel1966

Or in many cases with people who come to this forum, to obtain credit which they regard as FREE money, spend recklessly, not be able to pay it back, look for ways to avoid payment, get defaults, go bankrupt, screw their credit file for six years, blame the card company for giving them credit in the first place and forcing them to spend spend spend !

Am I too cynical ?

Oneday77

exel1966 wrote: »

Or in many cases with people who come to this forum, to obtain credit which they regard as FREE money, spend recklessly, not be able to pay it back, look for ways to avoid payment, get defaults, go bankrupt, screw their credit file for six years, blame the card company for giving them credit in the first place and forcing them to spend spend spend !

Am I too cynical ?

Cynical no, using too broad a brush yes.

There is always the agument of it's the CC v the consumers fault.
The real issue is both sides have been too greedy i.e given too much and spent too much.

@OP, CCs are a secure way to make purchases and provide extra benefits. If you understand and respect money then you can make one work for you.

CLAPTON

Cointreau wrote: »

Hi there, I know this is incredibly green, so apologies! I'm fresh out of university, have always used my debit card and have never felt the need to open a credit card (I suppose that my student overdraft played that role). Now, i'm renting, so that money goes out the day after i'm paid. Bills are divided between four so are never enormous and I don't really have any other large purchases on the pipeline. Anything expensive I fancy I save up for. So should I get one just to build up my credit rating, or is that a myth too? I just can't really see the appeal of getting one, so I just thought I would come here and ask if there are any other advantages i'm not aware of. Many thanks!

better to never go into debt (except for mortgage)


however CC do have some benefits

-section 75 protection that means the CC company is jointly responsible for the product/service with the supplier (e.g. if the company goes bankrupt before supplying your product but after you have paid, the CC will reimburse you)

-does indeed improve your credit rating assuming you use the card properly as it shows a consistent record of handling credit properly... useful if applying for a mortgage

-hiring a car often requires a CC especially abroad

-similarly hotels often insist in a CC

-if your job requires you to (say) travel and pay your own way and only re-emburses you later, then CC is useful way of budgetting

-some benefits like caskback (i.e. money discount on the bill) or points (e.g. tescos, airmiles etc) can be useful


so if well used (i.e. pay in full each month) then yes they can be good to have

Owain_Moneysaver

Also: if you pay for things with a debit card, the money comes straight out of your bank account. If someone else pays for things with your debit card the same applies and the first you hear about it is when you're skint in the middle of the month.

with a credit card the transactions are listed on your monthly statement but you have got ~20 days to dispute them and it's in the CC company's interest to resolve disputes otherwise you refuse to pay. With a CC the company can reclaim the money back from the retailer.

Also useful to spread the cost of anything big over a couple of months but always work on the principle you pay off at least half the outstanding balance every month.

Cointreau

Thanks! That's really helpful. I'm quite strict financially so I trust myself to use it properly.

So if I opened, say, a tesco credit card, only used it to buy groceries there, and paid in full every month I would 1) increase my credit rating and 2) get loyalty points etc? Sounds good to me.

I'll have a look at the top credit cards at the moment and see what they offer, since the only real reason I would use it would be to reap any extras they offer. Any suggestions would be very welcome, of course.

Lokolo

1) Yes

2) Yes

opinions4u

My original reason for getting a credit card was to buy a hi-fi. Sexy Sony thing from 1986.

I left school, got a job and was earning £350 a month. The Sony was £450.

Pay packet one paid for suits, travel season ticket and rent.

Most of pay packet two was mine! Girobank gave me a card with a £250 limit, so I wandered in with a cheque for £200 and the credit card paid the rest. Got some free CDs too - Gerry Rafferty and Eurythmics.

Pay packet three paid off the credit card in full.

I then got in to the habit of doing all my spending on the credit card, saving the money I'd spent and then withdrawing the savings to clear it in full on pay day. Earning a bit of interest for the time the money was in the savings account.

National and Provinical Building Society then came up with a cash back credit card paying 0.5% cashback. So I was earning interest and cashback because of the way I used the card. This progressed to a 1% cashback card with Halifax that I still have today.

Stoozing 0% deals then became the name of the game as I took out lots of credit cards with limits at one point exceeding £100,000. Online gambling then took off when the government removed betting tax from consumers. I was able to arbritage bets (guaranteeing a profit) and earn cashback, Goldfish points, GM Card points, Airmiles etc all becausue of credit cards. It helped fund a very successful part time gambling business, a £2,500 deposit for the wife's new Corsa and there's still tens of thousands of Airmiles waiting to be cashed in.

The gambling and stoozing was basically killed off by the card companies turning gambling transactions in to cash advances (with a fee) and charging fees for balance transfers.

So today, my credit card allows me to defer payment and earn interest on that deferment. It also pays me cashback.

The best invention ever if used to the consumer's advantage!

alibongo42

There is also the benefit of having access to finance in an emergency such as being stranded somewhere (home or abroad), unexpected and expensive car repairs and probably lots more I can't think of right now.

However, the advice above of steering clear if you can't trust yourself is the most important thing.

Johnmcl7

I was in a similar position a few years back when I left university and went for a credit card mainly for the payment protection and because some places require a credit card. Initially I didn't use the card that much but after an error with a company who put an order through twice and drained most of my current account as I used a debit card I now use a credit card most of the time. There's also advantages such as discounts and cashback to benefit from which can be worthwhile over time. I always ensure I have the money for large purchases and clear the balance every month, there's been a couple of fradulent attempts on card so I'm always grateful for the additional security it offers.

John