Sunday, 12 December 2010

When credit cards are your only option

Credit card spending is on the rise again. While some debt charities and economists might be concerned, there are times when spending on your credit card isn’t just the right option, it’s the only one.

yahoofinance
, 14:07, Friday 10 December 2010


Monthly spending on credit cards is growing for the first time since 2008, with spending set to exceed £112.5 billion in 2010, independent market analyst Datamonitor reports.
But this doesn't have to be a bad thing. No one would recommend maxing out your plastic to fund a lifestyle you can't afford any other way, but using your cards more and paying off the balance in full each month can make great financial sense.
More than that, in a growing number of situations, cutting up your cards would leave you not just inconvenienced, but entirely incapable of buying certain things.
Here are just some of the situations where credit cards are more than just an optional extra, but allow you to do things that other payment options simply don't.
Building up a credit score
Using a credit card wisely is a good way to demonstrate that you can handle debts responsibly. Diligent users can even build a good credit profile without having to pay interest, which is helpful when looking to secure a mortgage or an increased line of credit.
In fact, rather than making a virtue of you never having owned a credit card or been overdrawn, mortgage lenders have been known to refuse loans because the person applying had never shown evidence that they were good at repaying debt.
By taking out a single card and paying it off in full every month, you can quickly build up the sort of credit history that proves to financial institutions you are responsible and will see you offered the best deals.
Check out your credit report with a free 30-day trial of CreditExpert
Sporting events
Sporting events frequently have strict rules when purchasing tickets. The FIFA World Cup, for example, only allows sports fans to pay with MasterCard.
As Visa is one of the official sponsors of London 2012, they have exclusivity for the use of their products — meaning tickets can only be purchased for the games using Visa's payment system.  In addition, when you are at various events, the only plastic you can use has to be supplied by Visa.
Tickets for London 2012 go on sale in 2011 and if you are planning to purchase tickets and you don't have a Visa account, you will have to set one up.
Compare top credit cards now
Keeping your card in your wallet
New technology allows you to pay for things without taking your card out of your wallet or handing over cash - but it's only available to credit card users.
Contactless technology speeds up the purchasing process by removing the need to wait for change or enter a Pin into a handset, without sacrificing security.
When you use one of these cards, the radio frequency identification (RFID) chip creates a unique number for the particular transaction - so even if that number falls into the wrong hands, it will be useless. On top of this, you can only use the card for small purchases and it will periodically ask for your Pin to check someone else isn't using it on your behalf.
For example, Barclaycard Platinum Credit Card and Barclaycard Initial Credit Card customers can benefit by using their card to pay for everyday items for £15 or less which offers convenience if you don't have any cash for a small payment.
Get paid for spending
If you get a credit card with a rewards programme you are eligible for a host of benefits and if you're savvy, you can make your credit card work for you. However, you need to pay off your debt in full each month or you'll face high interest payments that outweigh any rewards you've earned.
For example, the American Express Platinum Cashback Credit Card is the market leader, offering 5% cashback on all purchases within the first three months — up to £100. After that, it pays up to 1.25%.
Taking out this card could be a smart move if you're planning an expensive purchase before the VAT hike in January.
Supermarket shoppers can also earn rewards. With the Tesco Clubcard Credit Card you receive one Clubcard point for every £4 you spend anywhere in the world, but since your card also doubles as a Tesco Clubcard, you'll get that point plus standard points for any money you spend in Tesco itself. These can be exchanged for a selection of rewards including groceries, airmiles and trips to theme parks.
Compare top rewards credit cards now
Emergency funds without savings
For those diligent and well organised savers, this point may not apply to you. If you have arranged an accessible emergency fund you should be in good shape. For the rest of us, having a spare credit card in your wallet, a drawer at home or possibly the glove compartment of your car can provide an instant emergency fund if you lose your wallet or are confronted by an unforeseen expense.
Extra protection
When you buy something with a credit card worth between £100 and £30,000 you get an extra level of protection that you don't receive if you pay by debit card or with cash. Thanks to section 75 of the Consumer Credit Act if you buy something that turns out to be faulty, fails to turn up (even in the event of  a company going bust) or is misrepresented you can claim the money back from your credit card provider.
This may be particularly helpful if you're making a purchase online, where goods can arrive broken, not as described or even not at all.
More on Section 75 protection
Renting a car
Most major rental companies require a credit card to initiate or reserve a car for hire even if you plan to pay cash for the car itself.  Having a card that offers discounts on car hires is particularly beneficial especially when you take the insurance into account.
When you pay cash, you will have to put up the money for insurance but when you pay with certain cards insurance is already provided.
Compare top credit cards online

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