4 Situations Where Using a Credit Card Might be a Good Idea
Over the past couple of decades credit cards have gotten themselves a bit of a bad name. It stands to reason when you consider the stories of people who have landed themselves with huge credit card debts, which have in turn resulted in a lot of financial stress and pressure.
Often times though, it is not so much the credit card in itself that is the problem, but more the way the credit card has been used or viewed. If you use a credit card to fund a lifestyle that you really can’t afford for example, then it is more than likely you will find yourself building up levels of credit card debt that you will simply be unable to repay or even sustain. That being said, there are still some situations where using a credit card can actually be a good idea. Let’s consider 4 such situations.
To build up your credit rating
If you are looking to buy a house or perhaps take out a loan for some other ‘good’ reason, then you are going to need to have a good credit rating so that banks or other lenders will be able see that you have a history of repaying money when you borrow it. This can land you in a bit of a catch 22 situation, where you can’t borrow money because you don’t have a credit history but in most cases you need to have a credit history in order to be able to borrow money in the first place. Argh!
In this situation, it could make good sense to apply for a credit builder credit card. These kinds of credit cards are produced specifically for people who have no credit history at all and who are looking to build one. They are also for people who have had problems with credit in the past, leaving them with a bad credit score that needs rebuilding. Credit builder credit cards give you a lower credit limit when compared to mainstream credit cards, meaning that the lender is at less risk of losing a lot of money if you don’t repay. It’s worth mentioning that the potential risks of lending to people who have a poor or even a non-existent credit rating do carry a cost though and this is reflected in the interest rate which is payable on the card, as it will usually be higher than the interest rate which is offered on mainstream credit cards.
When going on holiday
Another situation when it can make sense to have a credit card in your wallet is when you are going on holiday. This is because it can often be much safer to spend using a credit card when abroad, not only because it saves you carrying lots of cash around with you but also because your purchases of over £100 will be covered by section 75 of the consumer credit act.
It can also be handy to have a credit card in your wallet when on holiday just in case of emergencies. Sure, we all know that it is better to have an emergency fund available for unexpected emergencies, but what if being abroad makes it difficult to access this cash? We can see that it might well be wise to have a credit card on hand when travelling abroad, even if it is only to be used in an emergency and then the balance repaid when you return home and have better access to your cash and bank accounts.
When there are rewards to be had
These days many credit cards also offer bonus rewards to account holders to attract customers. Sometimes these rewards can make it well worth your while to use a credit card on a regular basis, just so long as you pay off your balance at the end of each month so as to avoid paying any interest. A good example of a rewards credit card in the UK is the Avios credit card from TSB. This card offers ‘Avios’ on most of the purchases you already make on a daily basis and these ‘Avios’ can then be turned into flights, hotels, days out and more.
When shopping online
In the same way that credit card purchases made abroad are protected under section 75 of the consumer credit act, online shopping purchases of over £100 are also protected under this bit of legislation too. This only applies to credit cards and not debit cards however and there are terms and conditions, so it’s wise to check these out before making a purchase which you hope will be protected.
We can see then that when used correctly, credit cards can actually be quite helpful things to have. As long as you make a determined effort to repay your balance in full and on time each month, you will then be able to make use of the benefits credit cards can offer without having to feel the potential financial pain that can come when a credit card is not used properly.
Can you think of other situations where it can make sense to have a credit card on hand?