Why Credit Cards Are Better Than Debit Cards

You don’t have cash, your current account is low on balance but you want to buy that lovely suit or dress? No worries. Just fish out your credit card, swipe it and be on your way. Credit cards are a simple way to make cashless payments when you don’t have enough money. They’re like your regular debit card. But when you use a debit card, the amount debits from your current account. When you use a credit card, the card issuing company will pay the seller instead of you. You pay back the issuer when you get your next salary.

Credit Cards Are Different From Debit Cards

To shop with a debit card, you need to have that much money in your current account. This is not always possible unless you go for No Guarantor Loans. Plus it’s a headache to always check your balance before buying something. If your account has a low balance, you may lose an attractive deal. Credit cards are plastic cards that help you pay for goods or services, flight tickets, and much more. It’s like borrowing a loan from the card provider. Every month, you settle whatever you owe.

You can approach a card provider like a bank or building society if you want a credit card. An important thing here is your credit history. If it’s good, your application has a high chance of approval. If you’ve poorly managed your finances or never took credit in the past, getting credit cards can prove to be difficult. Even if you’re accepted, the card provider may offer a less favourable deal. Hence, if you’re planning to buy credit cards in the future, maintain a good credit score.

Different Types of Credit Cards

The different types of credit cards available to UK citizens are:

• 0% Balance Transfer Cards:
  With a 0% balance transfer credit card, you can transfer an existing debt from your old to a new credit card. You then pay off the debt interest-free. But, you may have to pay a transfer fee- typically 3 to 5%. Remember that the interest rate will revert to the going rates after the 0% deal gets over. So you should pay it off earlier or switch to another 0% deal to save money.

• Overseas Spending Cards:
  Overseas spending cards, or travel credit cards, are specially designed for travellers who frequently travel to foreign countries. On an overseas trip, you can take cash, prepaid card or credit card to make purchases. However, your cash may get stolen and prepaid cards come with big fees. Travel credit cards charge zero fees for foreign transactions and have a reasonable exchange rate. And they come with identity protection, so you don’t have to worry even if your card is stolen.

• Cards for Bad Credit:
  If you have a bad credit history, getting new credit can be an uphill task. While it is difficult for people with a low credit score to qualify for conventional credit cards, you can always take a card that helps improve your credit rating, when used correctly. At the outset, cards for bad credit offer a low limit on the amount you can borrow. If you pay it back in full every month, your credit file will show a positive record and your borrowing limits will rise. These cards tend to apply a higher rate of interest but are a great option for creating a good credit history. You can later apply for a mainstream card with a lower interest rate.

• Rewards Cards:
  Reward credit cards reward you every time you use them. It’s like an incentive for using the card. There are three main types: shopping points, air miles or cash back. It’s an individual preference which type of card you want to take. Some prefer exchanging shopping points for vouchers or cash back that you can use the next time you shop. Cash back varies from one retailer to another, however. Most people who are frequent fliers prefer air miles as they get points every time they book flight tickets and can redeem them the next time. It’s a good practice to pay your debt in full in order to take full advantage of the rewards and cashback on your credit card.

• Interest-free Cards:
  Interest-free credit cards come with an introductory offer of 0% interest for a limited number of months. During this period, you can shop on your card without incurring any interest. So, people make a lot of purchases while the offer is still on. Yet, you have to pay back the loan in full when the 0% offer ends. Else you would have to pay a high headline rate.

Credit Card Protection

A disadvantage of debit cards is that they don’t give you an extra level of protection. If you make purchases with your credit card and the transaction value is between £100 and £30,000, you can get a full refund from your card provider if: (a) the item is wrongly manufactured and the company won’t fix it and (b) if the company goes bankrupt before delivering your goods. As long as the sum is above £100 and below £30,000, you get this protection as per section 75 of the new Consumer Credit Act. For example, if you buy two train tickets- one inbound and one outbound- worth £80 and £35 respectively, you won’t be able to claim this protection as they’re technically two separate transactions. However, if one ticket was costing you £120, you would get cover as it’s a single transaction and above the minimum limit.

Purchase Protection

Some ‘premium’ credit cards offer purchase protection in addition to credit card protection which is free. For this extra protection layer of protection, you may need to pay an annual fee. This works such that if you buy something with your credit card and it’s lost or stolen within 90 days of the purchase, the card company will give your money back. However, you cannot claim an amount for the same item twice. For example, if your iPhone was stolen from your home, you can claim on your contents policy if you have one. Else you can claim on your purchase protection. Not both.

Extra Protection

A few credit cards also come with an identity theft cover. This is mostly free. Some card companies conduct free credit checks a few times a year to find any suspicious activity with your personal details. They check for any fraud applications made in your name and give you an ID fraud helpline you can complain to.

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