Money

[lavendersparkle]

So, I'm thinking of getting a credit card but I don't know much about it all and hopefully the LJ collective will be able to help.

I've never had a credit card before. My combination of affluence and frugalness has usually meant that (excluding the student loan) I'm a net saver. I have an authorised overdraft of a few thousand pounds because I needed it to buy an annual season ticket when I was commuter, and once that got paid off, within a few months, there didn't seem much point in 'unauthorising it'. Nowadays I'm a student and live in college accommodation. I've got a very generous stipend that gets paid into my current account every three months. I don't know what my credit rating is. I've never been refused a loan but I've never asked other than the overdraft.

Why I want a credit card:
-I heard that being frugal and always being in credit isn't the best way to get a good credit rating. Apparently, having a credit card that I occasionally buy the shopping with and then pay off immediately will make my credit rating better. As long as it doesn't involve too much faff and doesn't cost me anything, it seems to be a good idea to improve it for when I may want to borrow money in the future.
-Apparently credit cards are in some ways 'safer' than debit cards. I'm not sure exactly how. I think it's that if you pay for something but the person you pay turns out to be a fraudster who runs off with the cash, if you pay with a debit card, you lose the money, but if you pay with a credit card, the credit card company lose the money.
-Nationwide are very good, but they have twice frozen my accounts due to admin glitches that weren't my fault. This didn't cause much of a problem as I just went into a branch and they sorted it out very quickly. However, if they had done this when I was abroad it would have caused big problems, so maybe it would be good to have a backup from a different bank/building society in case they ever do it again. (It's also less embarrassing in Sainsbury's to be able to produce a different card that works when the first one doesn't, rather than having to just leave your shipping at the check out.)
-In the next year I may be spending a lot of money, (think several thousand pounds) in chunks ranging from a couple of hundred to a couple of thousand pounds, on top of my usual living expenses. Now, I'm not going to spend more than my current savings plus money I save over the next year so I don't need to borrow money, but I heard that some credit cards have deals where they don't charge you interest for the first 12 months, in which case I could keep my money in a savings account earning interest and pay everything off on the 11th month. I've also heard of cards that earn you supermarket vouchers or money back so I may as well get that if I don't have to pay charges or pay the bill in full each month so I don't have to pay interest. Aren't there also cards that give money to charity for every pound you spend on the card?

I'm sure you all know an awful lot more about all this than I do so I would appreciate your words of wisdom.

Comments

[naath.livejournal.com]

The bit about the card people loosing the money if the seller is a fraudster is true (they get to go after the fraudster for their money) - so credit cards can be good for that.

The bit about interest free credit cards is complex - obviously you want the joy of borrowing money for free (and yes, your idea is a good way to extract money from the system) but watch out for the snag. Usually the snag is that you pay off whatever debt you are paying the least interest on *first* - so if you owe 1000 pounds at 0% interest (from an offer) and 100 pounds at 10% (from putting all your food shopping on the card) and you give them 100 pounds you will now owe 900 at 0% and 100 at 10% - and accrue vast amounts of interest! So if you go for one of these deals then you'll want to check carefully what gets the 0% rate, and what gets paid off first if you have balances at different rates and stuff like that (you could have 2 cards of course, no reason not to unless you are going to go insane with them).

I'm not sure how credit score works but having a card that you always pay off isn't going to get you bad credit. I believe you can get cheap (or maybe free?) credit reports from the major agencies if you need to check.

[lethargic-man.livejournal.com]

I heard that being frugal and always being in credit isn't the best way to get a good credit rating. Apparently, having a credit card that I occasionally buy the shopping with and then pay off immediately will make my credit rating better.

This is anecdotal evidence and so only of limited value, but I had no problems securing a mortgage despite never having owned a credit card.

Apparently credit cards are in some ways 'safer' than debit cards. I'm not sure exactly how. I think it's that if you pay for something but the person you pay turns out to be a fraudster who runs off with the cash, if you pay with a debit card, you lose the money, but if you pay with a credit card, the credit card company lose the money.

Not so. I had a cheque book stolen and £3k taken out of my account, but the bank reimbursed the lot; and I believe that debit cards are treated similarly to cheques. What the difference is is that if you are subjected to fraudulent transactions in whatever form, using a debit card you stand to lose all the money in your account (albeit that the bank will subsequently reimburse you); with a credit card you can only lose up to your credit limit.

[robhu.livejournal.com]

You should look here (http://www.moneysavingexpert.com/cards/).

[cesy.livejournal.com]

The thing with credit cards being safer is that if you buy e.g. a washing machine on your credit card and it breaks, you can go after the bank for a refund as well as the person you bought it from, whereas with a debit card, you can only go after the person you bought it from. This gives you extra security if you make a large purchase, the company you bought from goes bust, and then the item breaks, since the bank is then liable.
If you do your shopping on a credit card and then pay it off in full by direct debit each month, you also get up to 59 days interest-free, thus making a few pence interest on all your shopping. And doing that for a few months means that you get a credit history and then they'll give you a larger limit, which is useful when you actually do need to make a big purchase.
Cashback cards are also good, but tend to require you having a credit history first. Then, yes, they'll give you a penny back for every pound you spend or whatever. You can choose whether this penny comes in the form of cash to you, cash to a charity, or vouchers from a shop. Cash to you and then giving it to the charity yourself generally means that more money goes to the charity than opting for a "charity credit card".
Basically, so long as you make sure you always pay it off in full, you pretty much can't lose.
Also, there are some internet sites, shops and train companies which only accept credit cards, not debit cards. Having an extra in your wallet just in case saves embarrassment and missing trains. (I speak from bitter experience.)

[emperor]

One thing to check is annual fee - these are becoming more popular again now. You should be able to find a credit card that meets your needs without having to pay an annual fee.

It can't be emphasised enough that you should not borrow money on your credit card, ever.