Are credit cards ever a smart idea? All you need to know

By Charlotte Yau

Find out how you can use your credit card to help improve your credit history and even make a little extra cash.

Despite what you might read in the media, having a credit card isn’t all doom and gloom – actually having one can be a good idea. Credit cards are an everyday part of life, helping people purchase something they perhaps couldn’t otherwise afford but it also builds up a credit history tells potential/future lenders how reliable you are when it comes to money.

Having a good history of credit can set you up for large financial commitments such as mortgages or loans but that’s not the only thing that credit cards are useful for – check out how a credit card could be a good idea for you.

When you don’t have a credit rating

Finance companies like to see how you can manage your money – if you make payments on time, if you use all the credit available to you and how you pay for life’s expenses. If you don’t have any history then lenders are taking a risk with you because they can’t tell if you’ll make repayments or not. There are specific credit cards designed for people with a limited credit history so even though it may come with a higher rate of interest, it will help you to build up your rating and show potential creditors that you are able to manage your credit.

When you have a bad credit rating

Everyone does stupid things at some point in their lives, but having a poor credit history doesn’t have to stop you from attaining things such as a mortgage. Taking out a credit card aimed at rebuilding credit history, using it to buy little necessities in life (toiletries, weekly groceries etc) and then paying off the balance in full each month can help to repair a bad credit rating. It shows creditors that you can manage your money and can be trusted to keep up with repayments.

When the card comes with useful perks

Some supermarkets do a loyalty scheme where when you purchase your groceries with them they will give you extra loyalty points. For example, Sainsbury’s will give you extra Nectar Points for using your Sainsbury’s credit card to do your shop – which you were going to do anyway. You then pay off the balance and you’ve gained extra points for doing something you’d do anyway; these points can then be used towards shopping or for a double up event, making them go further.

There are also many cards that offer cashback for using them, so if you’re going to buy something anyway then you might as well get the extra money back – doing your weekly shop is a great way of using a credit card because it’s something you’d be buying anyway, just don’t go over the top on the Doritos and beer.

Large purchase protection

If you’re planning on making a large purchase, such as a car, using a credit card will give you that added protection against anything going wrong. Most debit and charge cards don’t have this sort of protection so if you need a refund for any reason, making the payment on your credit card means you can do so without a problem.

Spread the cost of a large purchase

Want a new car? Planning a holiday? Using a credit card is a good way of spread the cost over a short period of time. Many cards come with 0% or very low interest rates for a selected time period, if you know you can make the full repayments in that time period using a credit card can often work out cheaper than a loan.

It can be really tempting to use your credit card when you really should not, that extra round at the pub is rather inviting, but before considering a credit card remember that they can have a negative impact on your credit history. Never use a credit card if you know you can’t meet the repayments.

Top Takeaway

Yes, credit cards can be a good thing when they are used properly for things like building up your credit or popping your weekly food shop on – they help strengthen your credit history and some come with extra perks which can make you money. They can also be a bad thing if abused so before taking one out think about how you plan to use it.

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