Making your credit card work harder for you

Are you making the most of your credit card? By getting the right rate, terms, benefits and/or rewards, you can make your plastic pay its way…

Key points

A credit card is much more than a way of spreading the cost of a large purchase or expensive time.

Used carefully and in the right circumstances it can earn you rewards, donate to a charity, help you get a better deal on overseas spending and even earn you cash.

General benefits of credit cards

At the most basic level, providing you pay off the balance before interest payments kick in, credit cards can give you a short-term, interest-free loan of up to 42 days.

It may not be much, but you can keep the money in your account for that time, earning interest or, perhaps, stopping you from going overdrawn.

The credit on a card should be available in an emergency and may help you when cash isn't an option - perhaps when hiring a car, or shopping online.

Your purchases with a credit card also have protection - under Section 75 of the Consumer Credit Act, credit card issuers and retailers take joint responsibility for faulty purchases.

This means that if you pay for something valued between £100 and £30,000 with your credit card your purchase will be protected in the event that it's faulty or you do not receive the goods or services you've paid for. In such cases, you can claim a refund from your card provider.Cutting the cost of loans

You may also benefit from chargeback protection, which is a way of getting your money back if things go wrong on debit card purchases and credit card purchases under £100.

However, you can only benefit from these cards if you have enough discipline to avoid running up expensive debts and getting into difficulties.

If you think a credit card might be too much temptation then it might be best to avoid them entirely, or to use a less flexible form of credit like a loan or even a remortgage.

Read our guide to cutting the cost of debt for more on the range of borrowing and repaying options to consider which might suit your circumstances.

Finding the right card

In the broadest of terms, there are two main categories of credit card user - those who tend to clear most, if not all, of their debt every month, and those who keep longer-term debt on their cards.

Did you know...?

  • A soft search can show you the cards you're likely to be accepted for before you proceed with a formal application

The category you fall into should help determine the sort of card that's likely to work best for you.

Getting the right card involves shopping around and comparing the options... but it's also important to make the right sort of comparison.

Failed applications can damage your credit history and leave you even less chance of securing the best deals, but you can increase your chances by using Gocompare.com's smart search tool before you apply.

Smart search performs a soft search on your credit records and will then show you the cards you're likely to be accepted for before you apply, meaning that your initial search doesn't impact on your credit history.

Cards for users who clear all or most of their debt every month

Cashback credit cards

As long as you're careful and have a decent credit history then you could actually earn money by spending via a credit card.Cashback credit cards

A cashback card returns to you a small percentage of what you spend as a reward for using the card.

The top cashback cards can pay as much as 5%, although usually only for an introductory period. After that, 0.5-2% is more standard.

However, some cashback cards do have an annual fee, so it's important to work out whether you'd actually make enough money for it to be worthwhile.

Reward cards

Not all cards offer cash as an incentive for use, some offer other rewards.

For example, a supermarket-affiliated credit card might boost your loyalty points even when you shop elsewhere, while others earn you air miles and credits for hotels, and some even donate a percentage to charity.

If you regularly travel or spend a lot in a particular supermarket then a reward card could help you save a considerable sum.

Cards for overseas spending

Overseas travel can be expensive and getting currency exchanged can be a major cost. Worse still, if you use a credit card overseas then there are often extra charges and a higher rate of interest.

So if you're often abroad then it could be worth researching credit cards designed for overseas spending.

These typically have 0% foreign purchase fees for spending within the EU, and sometimes worldwide.

Credit-building credit cards

If you have no credit history or a poor borrowing past then you might find it hard to get credit when you need it.How to improve a credit score

A credit builder credit card can help with that; you spend money using it each month and then repay it in full.

Future lenders will be able to see that you've managed credit sensibly and reliably, and that will make them more willing to lend to you.

However, credit builder credit cards usually have a very high interest rate - avoid these if you think you won't always manage to clear the balance each month.

Cards for users who run longer-term credit card debt

If your credit history is a bit chequered or you tend to leave a balance on your card, searching for the best credit card may be of even more value...

Did you know...?

  • Balance transfer fees sometimes outweigh the benefits of switching to a card with a lower rate of interest

Credit cards for purchases

If you're using a card for the purpose of spreading the cost of an expensive period or large buy then finding the right purchases card could save you some money.

Some credit cards offer a lengthy 0% interest period for new cardholders, meaning the borrowing won't cost you a penny during that initial time. Everything you pay goes on repaying the debt.

However, it's important to be aware that you'll eventually be charged interest so it's a good idea to try and repay the debt before that.

Credit cards for balance transfers

If you already have an outstanding balance on a credit card then it could be costing you a lot in interest each month.

But if you took out a card that's good for balance transfers then you could shift the debt onto the new card and, often, pay 0% interest for the introductory period.

Just don't be tempted to then run up debt on the old credit card again!

If you intend to stop using the old card then make sure you cancel it and cut it up as soon as the debt is moved across.

You also need to be keenly aware of balance transfer fees - calculate whether the fee outweighs the benefit of interest saving.

By Felicity Hannah