Do it right and your credit card will pay. You spend and it can give you extra protection, dole out freebies, extend your warranty, ID fraud protection, extra discounts and more. In fact, without doubt, they are the very best way to spend.
In this guide
Don't confuse credit cards with debt
This guide will take you through the top 10 tips for maximising the way you use your credit card. It's simply a way to pay for goods, yet credit cards give an optional borrowing facility. And it's this optional extra that's the problem, not the card itself.
Don't get me wrong, plastic's sometimes pernicious and has ruined many lives. Cards are like fire. Used right, they're a fantastic tool. Used badly, you'll get burnt.
So for those susceptible to temptation if they've got plastic, or are already struggling, steering well clear is the correct cautious approach. Or use the Best Balance Transfers or Credit Cards for Bad Credit guides for how to cut existing cards' costs. There's also the Credit Card Shuffle guide for how to do it without new credit.
Though you must remember the golden rule...
Always set up a direct debit to repay the balance in full each month, otherwise the interest you'll be charged will outweigh the benefits.
Get free flights or spending vouchers
To bribe you to sign up, many cards dole out freebies as soon as you spend a trigger amount on them. So sign up and do your normal spending on the card until you hit the trigger, ensuring you ALWAYS repay in full so there's no interest, then wait for the freebie – and you needn't bother using the card again.
The freebies available can be vast. Typical deals include the Lloyds Duo Avios* card, where provided you do £500/month of your normal spending on it for three months, you get enough Avios points for a return flight to Barcelona, Rome and more (though you'll still need to pay £30 taxes) or a return on Eurostar. The card has a 17.9% representative APR (Official APR Example).
Yet don't just grab this. Before you make a decision, read the full Credit Card Freebies guide; there's up to £30 of high street vouchers on offer, and much more. Or see the Airline Credit Cards guide for the top frequent flyer cards.
Get free extended warranties
Most electrical goods include a free year-long warranty – so if the product breaks down you can get it repaired at no cost. However, they also try to sell you extended warranties to last for extra years at a vastly increased cost.
However, one credit card gives you an automatic extra year's extended warranty on electrical goods, provided you use it to pay for them. Of course do ensure you pay it off IN FULL at the end of the month or you'll be charged interest.
The Ulster Gold Mastercard (16.9% representative APR - Official APR Example) gives an extra year's cover for after the manufacturer's one or two year guarantee expires. You can register up to six appliances per year. To qualify for cover, registrations must be made within 90 days of purchase for appliances costing between £75 and £2,000, check for exclusions.
It's the cheapest way to spend abroad
Want the best currency rate every time you're abroad? Then spend on the RIGHT credit cards, and it's cheaper than even the best bureaux de change. Often you can be up to 6% better off using the right card.
The top card is Halifax Clarity* which, unlike most cards, doesn't add a hidden commission to the exchange rate and has no ATM withdrawal fee. So pop it in your wallet just for holidays, but ALWAYS repay in full to minimise interest – if not, the interest cost dwarves any gain from the foreign currency use. It has a 12.9% representative APR (Official APR Example).
Don't assume all cards are cheap though, most are hideous. To check yours and see a full explanation, go to the full Cheap Travel Spending guide.
Get protection if the company you buy from goes bust
Buy something costing over £100 on a credit (NOT debit) card, and under the Section 75 law, your lender is jointly liable with the retailer. If the company goes kaput and you can't contact it about problems or any other issue, you have exactly the same consumer rights with the card company as you do with the retailer to get money back or compensation.
This applies even if you only pay a deposit on the card. Buy a £3,000 TV and pay just 10p on the credit card and, they'll hate us for telling you, but the card company's liable for the whole £3,000.
So if you're ordering an expensive product, do it on a credit card for safety, though of course ALWAYS pay it off in full to avoid interest. For more info including what counts as "spending £100" and how to make a claim, see the full Section 75 & Visa Chargeback guide.
Many credit cards offer a purchase protection system, meaning if you buy goods on the card and it is lost or stolen within a set time – usually about 90 days – you can get the money back from the credit card company.
This isn't the biggest deal, though coupled with the more important Section 75 legal protection explained above, it's useful. For most people it's not worth a new card application to get one of these, but be aware which of your cards have it, and if something goes wrong know you can reclaim.
Martin's story – a double claim...
A few years ago, I had my month-old bike stolen. So having been to the shop to buy a new one to get to work, I cycled to the police station to get a crime number so I could claim on my purchase protection. This second bike, which was chained to the cop shop railings and D-locked round the wheels, was stolen too. So I walked straight back inside, reported that too – and thankfully it paid out twice.
| Major credit cards' purchase protection
Official APR Examples
|Card||Protection||Other spending benefits|
|Amex Platinum*||Up to 90 days, £2,500 per item||5% intro cashback then 1.25%|
|Barclaycard Platinum Simplicity Visa*||Up to 90 days, £5,000 per item (delivered purchases)||Low rate for purchases|
|British Airways Amex Card*||Up to 90 days, £2,500 per item||Collect Avios points|
|Capital One Classic Visa*||Up to 100 days, £1,000 per item (£25 excess)||ID fraud protection|
|Lloyds Avios Duo*||None||Free return flight|
|MBNA||None||Credit card loan|
|Nationwide*||No longer on offer to new customers||Overseas spending|
|NatWest / RBS||None||2,500 bonus YourPoints|
|Nectar Amex*||Up to 90 days, £2,500 per item||Intro points offer & collect points|
|Ulster Gold Mastercard||Up to 100 days, £3,500 per claim||Extended warranty|
|Correct at December 2012.|
Use it to boost your credit score
Those with poor credit histories can boost them by using a credit card to demonstrate responsibility.
Of course, getting a card isn't easy if you have a poor credit score – so you need to apply for special ‘easy to get' cards which normally come with hideous 30%-plus interest rates.
Yet this isn't a problem, as all you need to do is spend a little each month, and then set up a direct debit to fully repay each month so it's INTEREST-FREE. Then after a year, your credit history should be bolstered. For a full list of cards and how this works, see the Credit Cards For Poor Credit guide.
Stooze for free cash
For the super-savvy and debt-free, you can make £100s for free from credit cards. They'll lend you cash at 0%, so stick it in a top savings account and earn 3% on it. There's even a word for this: stoozing.
The easiest way is to bag a card which has a 0% deal for spending on. Use it for normal expenditure, then save the unused money in your bank account. For full instructions and which cards to use, see the full Stoozing guide.
Free ID fraud protection
If you get any Capital One* credit card, it comes with free ID fraud protection. Most importantly this doesn't just apply to Capital One's products, but everything you have – whether you use the card or not.
So just getting the card means you get some of the extra protection – of course, if you spend without paying it off in full though, you will pay interest.
The protection involves two free credit checks each year and an ID fraud helpline to call if needed. See the full Free ID Fraud Protection guide for full info.
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Use it to get loans cheaper than the cheapest loans
So you need a loan – what's the cheapest way? A credit card. After all, the cheapest credit cards are cheaper than the cheapest loans (borrow less than £2,000 and you pay 18%). The difficulty is replicating the ‘ready cash' function of a loan.
A few cards have a special facility that lets new cardholders pay cash into your bank account which you can use as a loan, leaving you owing the card the money.
The one warning is that while loans have repayments over a fixed time, with credit cards you repay what you like above the minimum. So to truly replicate a loan's enforced discipline, set a repayment to clear debts in a fixed time, eg, three years, and set up a direct debit. For a full step-by-step guide, see the Cheap Credit Card Loans guide.
Get paid to spend on ‘em
Far too many people who have credit cards repay them in full and think they're doing well, as it doesn't cost them. WRONG. Some credit cards pay you cash each time you spend on them.
Do all normal spending on them and you can earn £100s a year – just ensure you've a direct debit to repay in full each month so it's interest-free.
Current top payer American Express Platinum* pays 5% cashback for three months, then up to 1.25%, but it also has an annoying £25 annual fee. If you don't pay it off in full, it has a 14.0% representative APR (Official APR Example) on spending (18.7% APR including fee).
Great if you're locked out…
Here's one more tip for free. I've never had the knack myself, but I'm told you can squeeze a card through the gap in your door to let yourself back in.
Think before adding the 'insurance'
Payment protection insurance is commonly sold with credit cards - the idea is it'll make some payments for you, usually for a year, if you are unable to (eg, if you lose your job).
But in many cases, it was mis-sold. Borrowers didn't realise they were signing up for it, or it was totally unsuitable for them, and some big lenders have been fined.
The protection isn't always bad, though policies sold with cards are often overpriced (you pay a monthly amount depending on the size of your balance). If you want it, compare the lender's cover with standalone providers such as Paymentcare or Best Insurance.
Always be vigilant to check you aren't getting more than you bargained for when you fill in the application, then check your statement each month to check you aren't inadvertently paying for extras if you didn't ask for them.
The impact on your credit score
To bag every benefit possible, you'd need enough plastic to do facial reconstruction on a Hollywood star. Yet it's important to be careful and think about the impact on your credit score.
Every time you apply for credit it has an impact on your credit score – and thus your ability to get further new credit (see the Credit Rating guide). Yet if you've got a good credit history there's no need to be unduly worried – if you don't, be wary and always concentrate on using your credit score to cut your interest costs (see Best Balance Transfers).
There are no hard and fast rules, but many have successfully had up to 10 cards without problems.
It's not how many, but how often that counts.
Lots of applications in a short space of time will shoot down your credit score; the overall number of applications is less important than the frequency.
Therefore, if you're grabbing multiple cards for different purposes, after the first couple of applications, apply for each of the others every few months. Other factors that count include total debts, repayment history and income.
Cancel old unused cards
Once you've decided you're not going to use a card any more, ensure you cancel it. That means actually calling the card company and requesting the account is closed, not just cutting the card up. This is because having high available credit can diminish your credit score, not just the amount of outstanding debt.
Focus on and pick multi-use cards
Ensure your card arsenal is correctly packed by first examining the benefits that your existing cards offer – if you have any. Then don't duplicate what you've already got just to get a mildly longer purchase protection, for example.
Some cards can cover a number of bases.