Money Matters: Credit Cards

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*Written June 2020, all information correct at time of writing

For a long time, credit cards scared the shit out of me; I hate the idea of borrowing money, and that negative sign on any account is not a fun sight. However, over the years it has become clear that credit cards can be a useful financial option and can provide significant benefits if used responsibly.

When I was younger, credit cards seemed like these magical, colourful tickets into another world; they were mysterious and distinctively adult. Black limitless Amexs, metal cards, Chase Bank cards embossed with Disney characters… all of these and more are advertised everywhere or flashed around in films. 

It took me a while to ‘get’ credit cards. Perhaps I haven’t yet reached the stage of life where I need to make very big purchases, so I didn’t really understand why you would use them if you couldn’t pay it all back in that first month. In my mind, there was no logic in paying more spread out over time, rather than a lower amount all upfront. 

However, I have since become a credit card convert. I’m definitely not a ‘Confessions of a Shopholic’ level credit card collector, but I do think there are a few important and useful reasons to get a credit card. One of which is having that financial wiggle room if you need to make a payment sooner than you have all the money for it in your current account. 

Before I go through some key benefits of credit cards, I want to stress that credit cards are a way of borrowing money i.e. ‘spending on credit’ up to a pre-set limit. To that end, if you do not pay back the amount you borrowed by the end of the month, your bank will charge interest on what you’ve spent until it’s fully paid back. 

Improving Your Credit Score 

Getting a credit card – and paying back what you borrow regularly – will improve your credit score as they provide a track record for other lenders to use. This record or credit history will show how much risk you post to the lender based on previous repayment history. 

Often, for many credit cards, you’ll need a history of good credit in the first place to even access them. While this feels a chicken and egg situation (how do you build credit history to get a credit card if you need a credit card to build credit history?), there are options. 

If you’re a student and you have an account with HSBC, Natwest, RBS or TSB, you are eligible for a student credit card. Your credit limit could be anywhere up to £1000 depending on the bank and your individual application. If you’re not banking with one of these, you can switch after you’ve claimed the rewards of your first choice student account. 

If you’re not a student, look for credit builder cards that are aimed at first time borrowers (or those with bad credit). These usually have lower limits (£100-250) and higher interest rates. Once you have built up your credit history with that card, you can switch over to another. 

Payment Protection

Under Section 75 of the Consumer Credit Act, if you use a credit card to pay in full or partly for goods or services that cost between £100 and £30,000 then your payment is protected. If the retailer fails to supply what you paid for, if what was supplied was not up to standard, or if the company has misrepresented what it is supplying, then you are eligible for a refund. Note that each item or service has to cost over £100, not the total bill.

To get your money back, first reach out to the company to give them a change to remedy the situation. If they won’t refund you or don’t reply, you need to write to your credit card company stating the following: 

  • What, where and how you bought the goods or services. 
  • How much you paid including proof of purchase. 
  • That you have attempted to contract the company and what the response was (if any)
  • What you’d like done i.e. to refund the purchase cost into your credit card account. Ensure you state that you are ‘making a claim under Section 75 of the CCA.’

Keep a record of everything!

Rewards 

Depending on the type of credit card you have, there are various rewards you can gain from spending using that card. These may only last for a specific intro period or for the entire time you hold the card. 

Types of reward include: 

  • Cashback – a percentage of what you paid is paid back to you. This might be a flat rate, tiered or depending on where you spend.
  • VIP access to events like concerts.
  • More favourable foreign exchange rates
  • Supermarket loyalty points
  • Hotel, shopping or restaurant vouchers
  • Air Miles / Frequent Flier Points

You will need to factor in the annual fee, interest rate, actual reward value, and any black-out dates (when points cannot be redeemed) to see if a credit card with rewards is actually worth it for you.

Key Credit Card Tips to Remember

  1. Always pay back at least the minimum payment. 
  2. The best way to avoid any interest at all is to set up a direct debit to repay the amount in full each month.  
  3. Use your credit card for large purchases to ensure they are protected if anything goes wrong. 
  4. Don’t buy foreign currency or withdraw cash as these services often charge a large fee or have different T&Cs. Use your debit card, a bank like Revolut, or a credit card specifically geared towards foreign spending instead. 

To find the best credit card for your credit score, needs, and with optimum rewards use Money Supermarket’s credit card comparison tool

Credit Card Term Glossary  

Interest 

  • Percentage calculation of your outstanding balance on your credit card, charged monthly. 

Limit

  • The largest amount you’re allowed to borrow on your credit card. This limit depends on previous credit history.

APR

  • The Annual Percentage Rate, the rate at which you borrow money including any fees.
  • APR is not always the same as interest rate, because it includes fees. E.G  borrowing at 16% APR could be made up of a 11% interest rate and additional charges equivalent to another 5%. 
  • The APR that is advertised is not necessarily one you’ll pay
    • Generally, credit card lenders will offer a lower APR for an opening period and then, after this has passed, you pay a higher APR for the remainder of the repayments. 
    • The APR is advertised usually as an average APR figure. 

0% Introductory Rate 

  • During a set intro period, you won’t be charged any interest on the outstanding balance. 
  • You may still be required to pay a minimum. 

Balance Transfer

  • If you want to clear your debt quickly without accruing more interest, you can get a balance transfer card. 
  • This card lets you transfer the amount you owe on your current credit card onto it and you can repay the debt, often giving you a 0% period to do this so you no longer accrue interest. 
  • Some cards take a one-off fee and others are free (but have shorter 0% periods).

Sarina Chandaria

Sarina Chandaria is a Senior Editor for Lifestyle and a weekly columnist at The Oxford Blue. She reads Geography at Christ Church, and is going into her third year. She has a particular fondness for travel writing, chats about personal finance and buying more books than she could ever possibly read.

About the Author

Sarina Chandaria
Sarina Chandaria
Sarina Chandaria is a Senior Editor for Lifestyle and a weekly columnist at The Oxford Blue. She reads Geography at Christ Church, and is going into her third year. She has a particular fondness for travel writing, chats about personal finance and buying more books than she could ever possibly read.