Credit cards often get a bad rap due to the potential to run up debt. Yet when used responsibly, they offer several significant advantage over regular debit cards, that help to enhance your financial wellbeing and provide valuable protections.
In this article we explore the real advantages of using a credit card.
Section 75 Protection
Protection under Section 75 of the Consumer Credit Act, is probably the most compelling reason to use a credit card for large purchase. You may have heard Martin Lewis harp on about this, but the protection is real and broad. I’ve even used it myself twice!
The legislation protects purchases made with a credit card, ensuring that if something goes wrong with your purchase, you can claim your money back from the credit card provider. There are a few rules around this though. Firstly the goods or service must cost between £100 and £30,000, and at least some of that (typically a deposit) must have paid for via the credit card.
Imagine you’ve booked a flight with Monarch Airlines, which then goes bust before your trip (this actually happened). If you had paid with a debit card, you might struggle to get your money back, often standing in line with other creditors. However, if you paid with a credit card, you could lodge a complaint with your card issuer, who would then refund the money directly to you.
This is particularly useful when ordering online, especially given the number of stories regarding high value Amazon order being swapped out for cheap rubbish.
It’s not immediate, and does involve a little time and paperwork, but eventually you’d get your money back as you’ll see in my real-world examples below.
My real word Section 75 claim examples
In my case I bought a drone from a UK company called Zano. I received the drone, but the company went bust before I was able to use it. That meant I couldn’t use their app and as such couldn’t fly the drone.
The drone was paid for on my Barclaycard, and so initiated a claim with them. I had to download and fill out a form providing details about the company, the product, and what the problem was. I also had to include proof of purchase (my credit statement was enough), and any other supporting evidence. About a month later the money was credited to my Barclaycard account.
The second time I made a Section 75 claim was for a £200 deposit on a hotel in Puerto Rico. I’d booked the hotel via Booking.com and enjoyed a 5 night stay. I’d paid a £200 damage deposit upfront which was to be refunded after check-out. When I check out, I was told the deposit would be returned in a couple of days.
Unfortunately the deposit was never returned. I tired emailing and calling the hotel but there was no reply. Booking.com itself also tried to contact the hotel, but failed to get a reply.
After 30 days, I contacted Halifax to make a claim. The procedure was similar to that with Barclaycard, and after a few weeks the deposit was credit back to my account.
The Government’s MoneyHelper website has an excellent guide to Section 75 protection with numerous other examples. It’s important to note that this protection only works when you’ve paid for the goods or services with borrowed money e.g. via a credit card, or a loan. If using a debit card, both Visa and Mastercard have a chargeback system, but it’s not as robust.
Improving your credit history
Using a credit card responsibly can help improve your credit history. Regular use and timely payments demonstrate to lenders that you are a reliable borrower. This can be advantageous when applying for loans, mortgages, or even rental agreements helping you secure better rates over time.
For those that don’t have a credit history at all, a specialist credit builder credit card can help to kick start your credit history record.
Example
If you use your credit card to pay for monthly expenses such as groceries and utilities, and you consistently pay off the balance in full each month, this positive payment history will be reported to credit reference agencies. Over time, this can improve your credit score, making it easier to secure a mortgage or loan at a favorable interest rate.
Emergency Funds
Credit cards can also serve as a valuable financial safety net in emergencies. Whether it’s an unexpected car repair or an urgent medical expense, having a credit card allows you to cover immediate costs and repay them later or spread the cost over time (beware of the interest rate though if not paid in full). This doesn’t mean you shouldn’t still keep an emergency fund. I just allows you to spread payments and improve your budgeting.
Example
Suppose your boiler breaks down in the middle of winter, and you need an urgent replacement costing £2,000. If you don’t have the funds available immediately, a credit card allows you to pay for the repair and spread the cost over several months, ensuring you can keep your home warm without delay.
Interest-Free Borrowing and Stoozing
Credit cards offer interest-free borrowing for a short period, typically between 15 and 45 days. This means you can make purchases and defer payment until your statement is due, without incurring interest—provided you pay off the full balance by the due date.
Some take this further by stoozing. That is taking out a credit card with a long term interest free period, and depositing that money into a high interest savings account.
Example
Suppose you purchase a new laptop for £800 on the 1st of the month. If your credit card statement is issued on the 30th of the month and is due for payment on the 15th of the following month, you effectively have up to 45 days to pay off the purchase without incurring any interest.
During this period, you can keep your £800 in a high-interest savings account, earning interest until the payment is due. It’s the same with Stoozing, except typically you go for longer deals.
At the time of writing the longest interest free credit cards available at the moment are offering 21 months. So if you borrow £5,000 at 0% AER then transfer that into a high interest account such as Trading 212 at 4.05% AER (variable) you could earn over £200 for basically doing nothing.
See our guide to the best high interest easy access savings accounts.
Long-Term 0% Interest Deals
Some credit cards offer extended periods of 0% interest on purchases. These can be beneficial for spreading the cost of large purchases over several months or even years. However, discipline is essential. You must make at least the minimum payment each month to maintain the 0% interest rate and ensure the total amount is paid off by the end of the promotional period.
Example
Consider you purchase a new kitchen appliance set for £1,200 on a 24-month 0% interest credit card. By setting up a standing order to pay £50 each month (£1,200 divided by 24 months), you can ensure the entire amount is paid off by the end of the promotional period without incurring any interest charges. This allows you to spread the cost of the purchase over two years without paying extra.
That same £1,200 spend with a loan at 8% AER would cost you and additional £96.
Credit card rewards
Typically credit cards offer better rewards and cashback than debit cards. The best rewards credit cards pay either in cash or points each time you use them. Provided you don’t run up any debt (beyond the interest free period), and pay the card off in full, you can earn £100s per year.
AMEX is the typically the highest paying rewards credit card, but unfortunately American Express isn’t as widely accepted as its Visa and Mastercard counterparts. That being said, for most UK spending, it shouldn’t be an issue.
Examples
The top paying reward AMMEX card pays 5% cashback for the first 3 months up to a maximum of £100, then 0.5% cashback on opening thereafter.
Standanter’s Edge Credit card pays 2% cashback on most purchases, up to a maximum of £15 a month, but does come with a £3 a month fee. You also need a Santander Edge Account (see our review).
Other cards reward customers with Avios or Nectar points (see our guide to Nectar).
Outside of credit cards, they’re also a few specialist debit card offering worthwhile rewards. The Trading 212 debit card for example offers 1.5% cashabck on spending until November 2024 (0.5% thereafter), while Chase offers 1% Cashback for the first 12 months.