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The benefits of a credit card

Four reasons why credit cards are good for your finances

With the ongoing impact of the economic crisis, most people are focusing on how to save money, not spend it. But for some, getting a credit card might actually be the first step towards climbing on the property ladder. 

Confused.com takes a look at the four main benefits of having a credit card. 

Convenience 

Mike Thomas, who runs money saving website Debtwizard.com, has been advising people for 14 years on how to resolve money matters. He believes that, if used sensibly, credit cards can be a useful tool, especially when it comes to your financial confidence.  

He explains, “If you’re going out, you know whatever’s thrown at you, you’ve got a bit of plastic in your back pocket. For some people, just knowing that they’re covered in an emergency gives them confidence.”  

In addition, with credit cards accepted in so many places, both home and abroad, you can say goodbye to that cheque book you’ve been carrying around for years, while unlike carrying around cash, if your card is stolen or lost all it takes is one quick phone call and you can cancel the card. Plus, they’re accepted pretty much everywhere and if the cash machine’s broken, it’s always there as a back up. 

Protection 

The economic downturn has seen reports of companies going bust and leaving customers not only without the goods they purchased, but also out of pocket.  

However, if you find yourself in this position, thanks to the Consumer Credit Act, section 75, if you’ve paid by credit card, your credit card company will refund the lost money, providing the transaction was for at least £100 (and up to £30,000). 

Likewise, if you find a payment’s been made on your credit card without your permission or your card’s been stolen, you should be protected due to credit tokens. 

The meaning of credit token is set out in the Consumer Credit Act 1974. The definition is broad and open-ended, but it includes the use of a credit card or debit card on an account which is overdrawn (up to the extent of its agreed limit) or which is taken overdrawn (up to the extent of its agreed credit limit) by the disputed transaction. 

If a consumer is using a credit token, even if they’re negligent with their pin, as long as they did not authorise the transaction, they will generally only be liable for the first £50 of any fraudulent transaction. 

Likewise, if you’re hoping for some additional consumer security, then many banks will offer extended warranty on items paid for by credit cards. Mike explains, “If you were buying a TV and it came with a one year warranty, as long as you register it within a couple of months and pay for it with a credit card which offers this service, you could end up with a two year warranty instead.” 

Credit History 

The current climate has also seen a dip in house prices and the number of mortgages offered by lenders.  

It’s always important to have as much financial backing as possible and credit cards can be one way to support your claim. Mike Thomas explains, “If you’re going to be taking out a mortgage at some time, there’s no harm getting a credit card - provided you pay it back on time. It could help as it demonstrates you have the ability of holding credit and paying it back.” 

Credit reference agencies record information supplied by the electoral roll, court records and financial data provided by financial organisations. Information included details any defaults or late payments, but also the amount of credit available and the amount that you repay.  

Lenders will generally refer to at least one of three credit reference agencies before deciding whether to lend to a particular consumer, so if you’ve used a credit card and have a proven credit track record, this can be more appealing to a mortgage lender than a consumer who’s never taken out credit.  

Additional Perks 

With so many credit cards available, it can be tough to work out which one’s best for you and it’s always a good idea to compare a great range of credit card deals.  

Some perks to look out for are air miles, zero interest offers on both new purchases and balance transfers and cash back rewards.

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