The smart way to use a credit card

September 22, 2006

By Peter Kenny

The use of credit cards in the UK is increasing everyday and although credit card debt rose by £0.3 billion during last quarter, many smart cardholders are using their credit cards to their advantage.

Cardholders who pay off their balance every month have the opportunity to use their credit card as a financial tool, giving them valuable benefits at no extra cost.

Buy now – pay later

Credit cards allow the cardholder a grace period between the actual purchase date and the balance payment date, this grace period can be up to 59 days. For example if an expensive electrical item was bought using a credit card, the cardholder could spread this payment over the period their balance is due. Money that would have been used for the purchase, could be kept in an interest bearing savings account until the credit card balance is due.

Cash back

There are some credit cards that give cardholders cash back for every purchase they make with their card. These cash back offers can be up to 3% of the purchase made using a credit card. The most notable players in this field are Morgan Stanley, American Express and GE Money. By spending £5000 a year, there is an opportunity to earn approximately £120 cash back.

Rewards

There are a number of credit cards that come with a reward scheme and again these should not be ignored. They work by cardholder receiving loyalty points like airmiles every time they use their credit card to make purchases. The cardholder can then redeem these points at selected stores. In many occasions and if used properly, credit cards with reward schemes can be more beneficial than a straightforward cash back credit card. Some of the best credit card companies that offer credit cards with rewards are Marks & Spencer, Egg, Tesco and Morgan Stanley.

Travel insurance

A credit card also offers a certain level of travel insurance. By using their credit card to purchase flights and accommodation, cardholders are basically covered in case anything goes wrong, this cover varies from card to card.

Purchase and loss protection

Using a credit card to make a purchase also protects the cardholder if the item is found to be faulty. This insurance cover can last for 30 to 60 days from the point of purchase and acts as a safeguard against rogue traders. In March of this year it was ruled that this cover also applies to purchases made out with the UK.