Credit cards worth it?

July 13, 2008 11:36 AM

I'm thinking of getting a credit card -is it worth it?

I'm 22, in the UK and thinking about getting a credit card -I don't feel I need one (not a big or enthusiastic spender) apart from establishing a credit rating -is it worth it?

I understand the benefits -insurance, cash-back etc but it seems like a hassle -I'm perfectly happy just spending money that I have using my debit card.

However, as credit scores are partly based on duration of credit history I'm thinking I should get a credit card if only to prove to future mortgage providers (perhaps 3 or so years in the future) that I'm responsible with credit etc.

As I've also learnt that cancelling cards reflects badly on credit rating so any card I do take out is hopefully going to last me a long time.

I bank with Natwest and am thinking of taking out a credit card with them as it would be easy to pay it off each month with my current online banking setup. But there are no benefits/cash back with it. Aren't credit cards desperate for people to sign up? I might not too excited about credit cards but I don't want to miss out on decent benefits like cash-back etc if there's available.

In summary is it worth getting a credit card and if yes, which is the easiest to use, best 'perks' and recommended over the long term so I don't end up dealing with the 'financial clutter' resulting in opening up other cards in the future?

Any UK specific advice/opinion would be much appreciated!
Thanks

posted by Flamingoroad to work & money (14 comments total)

I asked a similar question not too long ago... I'm also 22, but in the US, and saw no reason to get a credit card—much like you, I put things on my debit card and it was quite handy.

I went for the Costco American Express card, but I don't think that's available unless you're a Costco (a 'discount warehouse' type place) member, which I think is US-only. But up to 3% cash back, including gasoline, is nice. Several other cards offer the same type of thing. That said, I just got a whopper of a bill—it's easy to lose sight of how much you're charging to it. Not more than I can pay, but a lot more than I expected.

If you're able to pay it off each month, I think it's worth it to get one with cash back or some other rewards. (Note that the cash back really isn't much, but it's better than 0% rewards with cash.) I haven't really found it any more convenient than my existing debit card, but as long as you don't dig yourself into debt, I haven't found any downside to it, either.
posted by fogster at 11:51 AM on July 13, 2008

Pay it off every month. If you're about to put something on it that you know would take forever to pay off, rethink. Interest is what gets you in trouble.
posted by CwgrlUp at 11:54 AM on July 13, 2008

Having a credit is nice to have you travel. Especially if you rent a car (or as you say in the UK hire a car). Some hotels will not accept a debit card at check in if you wish to charge items to your room. And in most places, buying items online using the credit card offers more protection than the debit card (since the debit card takes your funds from your bank right away it could be days before it is reversed, with a credit card it isn't your money)

If you have no credit, you probably won't qualify for the card which offers great benefits like cash back (but keep in mind you have to spend a lot to see any significant money back). Once you've had a card for a while and are building your credit you will qualify for the cards with the lowest interest and the better perks. Odds are the first bank will not offer a large credit limit until they know you're good a paying your bills every month.

Get a credit card and keep your current attitude about the use of credit and it will help build your credit. And you'd have a line of credit if an emergency comes up. Just don't fall into a the trap of 'emergencies' consisting of nights out on the town or new TVs and you'll be fine.
posted by birdherder at 12:00 PM on July 13, 2008

There is absolutely no downside to having a credit card so long as you pay off the balance every month. And you always have it as a backup in case of emergencies.

Better to have it and not need it than need it and not have it.
posted by Justinian at 12:08 PM on July 13, 2008 [1 favorite]

Yes, it's worth it, if you'll actually remember to pay every bill in full and never forget to pay. The penalty fee for late payment is ridiculously high.

You find out over time that the benefits can be very good -- like, six months after you buy a new tire and it turns out to be defective. Merchants know you can just dispute the charge, even if you paid it off way back then. They give you less trouble.

Later on, you'll need a credit history. Get a card and use it.
posted by wryly at 12:10 PM on July 13, 2008

I recommend getting a credit card, but only if you can pay it off in full each month. If you have the self control to not (or hardly ever) carry a balance, it's a good idea to have one.

As you correctly identify, it helps build your credit history - which is a necessity these days. Also, a credit card can be a much better alternative for some things than using your debit card, because you have all kinds of consumer protection built into your mainstream (i.e. MC/Visa/AmEx) credit card, something you might not get from your bank. I would never use my debit card for ordering online, for example.

What kind of card to get really depends on what you plan on doing with your card. If you won't be carrying balances from month to month, then a "cash back" card might work for you. In my experience, though, the cash back cards have higher interest rates. If you think that you might be carrying a balance occasionally, then shop around for a card with the lowest interest rate on an ongoing basis (not the short-term low interest rate you get as an incentive, but the long-term interest rate when the introductory period runs out). You might also look at other offers that make sense for your spending habits - like a credit card that awards you with points that you can use at your favorite store, for example.

Shop around for a card that works with how you spend your money, and make sure you read the fine print and understand all the rules of each card before choosing one. Never pay a yearly fee to have a card - that should not be necessary.

Then once you get a card, make sure that you use it occasionally, then pay it all off. That's the way to both get your limit on the card raised, and to build your credit history. Be the worst type of customer from the credit card company's perspective (one who never pays late fees and never pays any interest on purchases), and you're off on your way to a good credit rating.
posted by gemmy at 12:17 PM on July 13, 2008

Definitely get one, and keep it in a block of ice in your freezer. It's my understanding, and the UK may be different, that having credit is the important metric, not so much using it. As long as there's no monthly/yearly fee you shouldn't use it unless you have a really compelling reason to. I use mine to buy subway rides and nothing else which keeps it available but mentally separated from my debit card.
posted by Skorgu at 12:21 PM on July 13, 2008

I have a 'Money' mastercard from Egg that I add money to at the start of each month (standing order) and use that for all my spending-money (everything after rent/bills), I got it about 3 years ago, when I was your age and thinking exactly the same thing. There's a £500 credit limit on mine which they've offered to increase a couple of times, but I haven't seen the need. It's come in useful a couple of times on sites that don't accept Maestro (my debit card).

I get 1% cashback, which isn't a lot, but it's a nice treat (couple of extra CDs!) when I get it paid each year. It's online-only, the website is pretty nice to use (as bank sites go...), customer service is pretty quick and they have been able to answer all the questions I've thrown at them. They text me with my balance once a week as well, which I find helpful for keeping track of my spending.
posted by gregjones at 12:38 PM on July 13, 2008

Seconding gemmy's advice, which is just what I was going to say!
posted by gudrun at 12:50 PM on July 13, 2008

The best way to handle a credit card that you intend to pay off each month is to subtract the amount you have spent on the credit card from your checkbook. If you have an attached savings account, as we do, actually transfer the money from checking to savings, then transfer the amount back from savings when it comes time to pay the credit card. That way you even earn a small amount of interest for the money you've set aside!
posted by lhauser at 1:44 PM on July 13, 2008

The reason I got a credit card involves last Thanksgiving. My husband found out that his debit card number had been stolen and used to rack up nearly twice the money he had in his account. He went into a super negative balance, and for the entire holiday weekend (Wednesday until Monday) he had absolutely no money to his name. Fortunately, he had me to help him out, and we didn't have a shared account.

I got a credit card soon after because I'd rather someone steal that number, rack up a huge debt and leave me to fight the charges than leave me with no money whatsoever. I used to use my debit card at all kinds of stores, but now I use a credit card that I pay off completely once a month.
posted by nursegracer at 3:25 PM on July 13, 2008

A credit card beats a debit card if you pay down the balance every month.

But one downside of a credit card that most people don't realize is that its sheer convenience means you will spend more money than if you used cash.

You can counteract this somewhat if you restrict credit card purchases to necessities.
posted by storybored at 5:42 PM on July 13, 2008

Some credit cards let you set up a direct debit to pay off the full amount each month. This is a nice automatic way to make sure you never have to pay interest.

You can definitely do this with an Egg card. Some other credit card companies don't let you do this because it's in their interest for you to forget to pay!
posted by roomaroo at 3:29 AM on July 14, 2008

I use my card to pay for bills and flights. I have a card that includes travel insurance which saves me a few hundred dollars each year, and credits points to my main frequent flyer scheme.

I think the important thing is to pick a card that works for you - I travel a fair bit so this type of card works great for me. I only ever have a $2500 limit, enough to pay for a flight to Europe from Australia.

I'm currently living in Europe and most places are switching to Pin and Chip for card payments. I found in a lot of places the only way I can pay for train tickets and other goods on a foreign card without cash is by using Mastercard. They won't take Visa or debit.
posted by wingless_angel at 12:51 PM on July 14, 2008