Money Mensch: Wise up to fantastic plastic

By Martin Lewis, March 11, 2010
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I love credit cards. Without a doubt, done right, credit cards are the best way to spend. Unless there is no choice, I leave my debit card, cheques and cash firmly in my pocket and bring out the plastic whenever I want to pay.

Don't get me wrong, plastic can be pernicious but, used well, credit cards can make your life easier and cheaper. People often confuse credit cards with debt. But a credit card is simply a way to pay for goods which has an optional borrowing facility. It is this optional extra that is the problem, not the card itself.

Always repay the card in full at the end of the month, preferably by direct debit, so there is never any interest charged. Then you have converted your credit card into a normal bank card but with lots of hidden extra benefits:

● The cheapest way
to spend abroad

Spend abroad on the right credit cards, and it is cheaper than even the best bureaux de change. Often you can be up to 6 per cent better off using the right card. The top card is Santander Zero which, unlike most cards, doesn't add a hidden commission to the exchange rate and has no ATM withdrawal fee. Use it just for holiday spending and repay in full.

Nationwide, Saga and the Post Office cards are pretty decent for this too. Yet almost all others are hideous and charge too much.
● Get free flights or spending vouchers

Many cards dole out freebies as soon as you spend a set amount on them. To benefit, sign up and then do your normal spending on the card until you hit the trigger, repaying in full, of course. Then wait for the freebie and don't bother using the card again.

Freebies available can be vast. Typical deals include the BMI Amex card, where provided you do £250 of your normal spending on it within 90 days, you get enough BMI miles for a return business-class flight to Russia, Turkey, Majorca and more.

Others offer up to £30 of high street vouchers, free BA flights and more.

● Free extended warranties

Many electrical goods include a free, year-long warranty, so if the product breaks down, you can get it repaired at no cost. However they also try and sell you "extended warranties" for extra years, at a vastly extended cost.

A few credit cards, such as Nationwide, give you an automatic extra year's extended warranty on electrical goods provided you use them to pay. Of course, do ensure you pay them off in full at the end of the month or you will be charged interest.

● Get protection if the company you buy from goes bust

Buy something costing over £100 on a credit (not debit) card, and, under Section 75 law, your credit card company is jointly liable with the retailer.

Then if the company goes kaput, you can't contact it, or even just have product failure, you have exactly the same consumer compensation rights with the card company as you do with the retailer.

This applies even if you only pay part of the cost on the card. Buy a £3,000 TV and pay just 10p on your credit card and the card company's liable for the whole £3,000.

● Stooze for free cash

For the super-savvy debt-free, you can make £100s from credit cards as they will lend you cash at 0 per cent. Stick it in a top savings account and you can earn 3 per cent or more on it.

● Free ID fraud protection

All Capital One credit cards come with free ID fraud protection. Importantly, this doesn't just apply to their own cards but everything you have - and you don't actually need to use the card for it to work. So simply get a card, stick it in your pocket unused and you get two free credit checks each year and an ID fraud helpline if needed.

● Use one to boost your credit score

Those with poor credit histories can boost them by using a credit card to demonstrate responsibility. You need to apply for special "easy-to-get" cards which normally come with hideous 30 per cent plus interest rates. Yet that's not a problem as the aim is to spend a little on them each month and make sure they are repaid in full, so it is interest free. After a year your credit history should be boosted.

● Get paid to spend on 'em

Some credit cards pay you cash each time you spend on them. By doing all your normal spending on them, you can earn £100s a year. Just ensure you've a direct debit to repay in full each month so it's interest free.

The current top-payer is Amex Platinum, which pays 5 per cent cashback for three months, then up to 1.5 per cent. You need family income over £30,000 for Amex Plat, yet there are many other cards too.

● Purchase protection

Many credit cards offer "purchase protection" schemes, which means if you buy something on the card and it's lost or stolen within a set time, you can get the money back from the credit card company.

For most people, it's not worth a new card application to get one of these as it's pretty common, but check whether your card has this benefit so you can take advantage.

Every time you apply for credit it has an impact on your score and thus your ability to get a further new credit card. That said, I've heard of people having up to ten cards with no problems. Though of course, if you've got debts, the absolute priority is to use your credit score to minimize their cost.

    Last updated: 11:06am, March 11 2010