When it comes to credit card usage, people can often misconstrue this as a negative thing. A lot of people use a credit card as a short-term loan, which can have a snowball effect due to high interest rates on repayments. However, this month’s article is not about the ills of using or misusing credit cards, rather it is to outline the positive benefits of credit card use.
Almost every credit card provider will offer worldwide protection against fraudulent activity on a credit card. The reason for this is that technically, the provider is lending to the consumer against an agreed limit, should there be any fraudulent activity the loss will be attributed to the provider itself. Therefore, the provider will act very swiftly to stop any further fraudulent activity, as well as, working at recouping the loss as soon as possible. Unlike bank account fraud, the funds lost are technically not owned by the consumer. This makes the fraud less of an inconvenience.
A great case study I refer to from experience is protection against travel. For example, gone are the days when you would take a trip to a travel agent to book a flight. Today we find it, much more convenient to book online. This is now the most popular way to plan a vacation, book a flight or even a stay at a hotel. With so many low cost online providers trying to undercut each other for competitive prices, should a company of your choice fall into liquidation, you would be fully insured against the looming potential loss, by having booked through your credit card. If you had booked using a debit card, then you would risk suffering the complete loss, unless additional assurance was bought.
Certain purchases are difficult to make with a debit card. When you want to rent a car or stay in a hotel room, you’ll almost certainly have an easier time if you have a credit card. Rental car companies and hotels want customers to pay with credit cards because it can be easier to protect themselves against customers for any damage they cause to a room or a car. So if you want to pay for one of these items with a debit card, the company may insist on putting a hold of several hundred dollars on your account. Also, when you’re travelling in a foreign country, merchants won’t always accept your debit card as payment, even when it has a major bank logo on it.
Most providers will offer an incentive for certain levels of usage; this could come in the form of ‘cash back’, air miles or loyalty points.
I personally use the Emirates NBD skywards card for the bulk of my transactions, with this, each month I accumulate a certain level of air miles which I can use at any time. This is a great incentive for an expatriate. Please note, in the small print of the terms & conditions from any provider, they will outline that any incentive or bonus’ provided are subject to no default payments on your monthly bill.
If you have no credit or are trying to improve your credit score, using a credit card responsibly will help your credit score. This is due to the fact that credit card companies will report your payment activity to the credit bureaus. Debit card use doesn’t appear anywhere on your credit report, so it cannot help you build or improve your credit.
Correct usage of a credit card can be extremely beneficial. As a Financial Advisor, I cannot stress enough against the use of a credit card, if you are looking for a short-term loan or if you cannot clear your credit card balance in full at the end of each month.
For additional information, contact Aaron Crotty at: [email protected]
By Aaron Crotty