Smart ways to use your credit card

Marianne Curphey

Credit cards are a popular option because of the many perks that are often offered with them. Make sure you're getting the most out of your credit card with this handy guide

A new survey reveals many people use credit cards for the perks they offer, or an easy way to make their money last until payday. The average spend is £1,500 per person, with half of all millennials saying that they used their cards just for cashback, points or Air Miles.

While it’s never a good idea to spend more money just for the rewards you might get, there are ways to make your credit card work harder for you.

You’ll need to be savvier about the way you use your cards if you want to make the most of the rewards, says Andrew Hagger, founder of the money information service MoneyComms.

“Changes to EU law mean that card companies aren’t offering the kinds of deals there were a couple of years ago,” he says. “The old days of generous rewards and perks are gone.”

The EU law reduced the fees card companies could charge merchants and reduced their profit margins. The good news is that card companies didn’t introduce card fees as a result, as some in the industry had predicted, although they did trim back the perks they offered.

 

Rewards for flying

If you travel regularly for work, or you value being able to jet off for a long weekend break, then the British Airways Credit Card by American Express.

It doesn’t have an annual fee, and you get one Avios point for every £1 you spend on the car. You receive 5,000 bonus Avios when you spend £1,000 in your first three months of card membership. You can also get a 2-for-1 travel with a Companion Voucher when you spend £20,000 each membership year on the card.

You do need to collect quite a lot of points for a European flight—for example 20,000 Avios gets you one return flight from London to Athens and 15,000 Avios buys you a return flight from London to Rome.

Make sure you pay the balance on the card off every month, as the charges are a hefty 22.9% APR variable.

 

Preferential currency rates

If you are going on holiday it is a good idea to buy foreign money and travellers cheques in advance as you’ll get a better deal that at the kiosk at the airport.

Most credit cards will charge you a cash advance fee and start charging you interest immediately if you try to buy foreign currency on your card.

However, M&S Bank cardholders don’t get charged this fee, plus they get preferential rates on currency which can make a difference if you are swapping sterling for a large amount of overseas currency. There’s also free delivery on orders over £500.

Sainsbury’s offer better rates for Nectar card holders and 0% commission plus free delivery on orders worth £600 or more.

 

Foreign usage

One of the best ways to spend money abroad is to use a travel-friendly credit card to make purchases and pay hotel bills.

The exchange rate that is used by your card provider will be more competitive than the one you as an individual would get if you were changing money at a bureau de change.

When you get home and your foreign purchases show up in sterling on your bill, the exchange rate will be better.

That’s why it is always better to opt for the local currency, rather than paying in sterling, if you are given a choice by the merchant at the point of sale. The shop’s conversion rate will be less competitive than your bank or card provider.

In order to make the most of this deal you’ll need to use a card which doesn’t charge you any fees for using it outside the UK.

Normally, when you use your credit card to withdraw cash, or use it to make a purchase when you are abroad, most banks or card providers will add on a foreign usage fee of between 2.75% to 2.99% of the value of the transaction.

This is different from the currency conversion, which is the rate of exchange in place when you make the transaction. The currency conversion is also set by your bank or card provider but varies in accordance with exchange rates.

The Halifax Clarity Card, which has no foreign use charges (although it does charge interest if you use it to withdraw cash from an ATM) is the best card to take on your travels.

The Nationwide Credit card has a rather complex deal where you get a limited amount of commission free foreign currency allowance.

As an example, if you spend £100 on your shopping in a month (in the UK and in sterling) you'll be rewarded with £20 worth of commission-free allowances to use on purchases in a foreign currency. Any spend over your allowance will incur a 2% fee, so you’ll need to do your sums to make sure you don’t have to pay the surcharge.

 

Shopping points

It used to be the case that credit card companies would reward you for spending, wherever that was. Now they are much more selective, and so you need to be strategic in order to make the most of your card.

You usually only get the best rewards if you use the credit card to shop in a nominated store. So, the Tesco Clubcard credit card will give you extra points if you use it in Tesco. Sainsbury’s M&S and John Lewis have similar schemes. You’ll also get money off vouchers to use in store, or to exchange for goods and services—these are often great deals because the company has managed to negotiate a bulk discount.

 

Points to watch out for

1. Remember to pay your balance off in full each month, otherwise you’ll end up paying more in interest than you earned in rewards

2. Don’t be encouraged to spend more than you would

3. Make sure you use the rewards, and read the small print carefully