Saturday 21 July 2018

Would you credit it? Everything you need to know about the plastic card in your wallet

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Stock image

Paul Merriman

Shopping online, or over the phone, has become second nature for the Irish consumer - but is it time to second guess our choice of plastic?

Your choice of bank card - whether it be credit or debit - can impact safer shopping, credit rating and budgeting, according to personal finance advisor Paul Merriman.

From safety and protection to interest and limits, Merriman explores the benefits, the drawbacks and the myths of that purchasing pal in your wallet.

 

THE FACTS

Added Protection

Paying by credit card can give valuable legal protection if the company goes bust or doesn’t deliver what’s promised; you may be able to stop payment or claim a refund from the credit card company. 

A minimum amount, in the region of €100, generally applies for this type of purchase protection to kick-in however. Credit cards also offer features like travel insurance and car rental coverage.  And, of course, if your card is lost or stolen, you can call the bank and cancel it, unlike a wallet of cash!

 

Avoid Interest

Although it can be a handy payment method, with certain perks, a credit card is not always the best credit option. If you need to borrow for a large amount or for the long term or ongoing basis, talk to your bank about an overdraft facility or a loan.

Credit card debt entails pricey interest on top of your bill so if you are paying the minimum payment option on your credit card, you are not actually shaving off any of your debt. It’s important that you look at how much is owed and how much interest you are being charged.

 

Credit Card Limits

If applying for a credit card you will be asked what limit you want.  Make sure your new card carries the limit you requested. Just because you qualify for a €5,000 limit card based on your salary, you should get the €500 card you have requested if it suits your needs the best.  You won’t charged more for the higher limit but you might be tempted to spend more!

 

Debit cards don’t protect as well

If someone steals your credit card and goes on a shopping spree, you can contest the charges.  When a thief makes charges with a debit card, or there is something wrong with a purchase, that money is already gone, and is a lot harder to recover. 

Debit card providers do offer some protection, however, so always ask what the terms are.  One could make the argument that a debit card is safer, in your own possession, as the funds are automatically removed from your account so restricts you overspending.

 

Introductory Rates

You can get a very low introductory interest rate when you first get a new credit card, which might tempt you to run up credit.  But this usually increases considerably once the introductory period is over, so make sure you know the exact terms.

 

Be Safe Online

With the majority of us now regularly shopping online, the tech experts recommend making sure you are on a secure site by looking for the padlock symbol next to the website address, which should begin https:// rather than http://.  The 'S' stands for secure. 

A green address bar is also generally a good sign, and clicking on it or the padlock will give details of the site’s security. If using a website to buy something for the first time, do some research to make sure it’s a legitimate business.  Even an online search can pull up posts from other users that might highlight a problem.  There is a website calledwww.scamadviser.com – this site can check the authenticity of a website before you use it. 

 

QUESTIONS ANSWERED

Does credit make you spend more money?

Studies do seem to indicate that paying with plastic can make you spend more money, on the simple basis that it feels 'less real' without the physical experience of parting with hard cash.

Paying with cards, phones and other tech innovations is practically instant, so people will rely more on common sense self-questioning – 'can I afford this', if not, 'do I really need it'?

One tip is not saving your credit card information on a mobile pay device or online shopping sites, as physically entering your credit card information gives that little extra time to think about the purchase.

 

I'm barely able to pay the interest on my credit card. What to do?

The first step it to consider transferring your balance to an interest free period card with another company, usually six months, and clear your balance within this time frame. Make sure you 1) cut up your credit card, both old and new, and 2) clear your balance within the time frame as these card will revert to high interest payments after the interest free period is finished. 

Do not think this is a free rein to start using your credit card again as you will most likely be paying more interest now than on your previous card!  

Before considering which company to go with please revert to www.switchyourbank.ie – the government free independent bank comparison site.  You will see that of the banks that offer 0pc for 6-9 months the lowest rate thereafter is 18.25pc and the highest is 22.9pc -  that’s a considerable difference. 

 

Do I need a credit card to pay for things online, like booking flights and gig tickets?

I would question if you need a credit card with the availability of debit cards today.  Although credit cards offer a couple of benefits, theft/fraud and insurance to name a couple, they bring with them the ease of ending up with a bad debt problem and years of repayments at outrageously high interest rates.  Debit cards are accepted everywhere and obviously you have to have the money in your account to pay for you goods/services which helps to keep you out of debt

 

What about traveling abroad, such as the US, and paying for car hire etc. Do I need a credit card for that?

Consider a prepaid service like the post offices PostFX™ Card. This card facility allows you load up to €30,000 annually and can be used anywhere you see the MasterCard sign.

 

Do I need a credit card to get a good credit score?

This is nonsense. No one in Ireland needs a credit score for lending.  There seems to be a fear out there that without having a credit record banks will not lend to you for cars or mortgages if you have no ICB (Irish Credit Bureau) records.  No record is better than a bad one, don’t run the risk of picking up a bad credit score with a credit card company.

 

So how does bad credit card debit affect me? 

All financial institutions (including the credit union) must record your loans with the ICB.  The records last for five years AFTER the loan is complete.  So that means if you finish a loan or credit card with a financial institution in 2014 your payment record will still be on the ICB.  If there are any missed payments (no matter the excuse) this is recorded on the ICB. If you apply for a loan regulation states the financial institution must carry out a ICB check in order to access your credit worthiness.

A bad mark on your ICB could mean you getting refused for borrow now.  For those worried about their ICB after reading this they can apply for a copy of their ICB report @ www.icb.ie for a cost of €6.

 

Paul Merriman is a Certified Financial Planner, Founder of Askpaul.ie and CEO of Pax Asset Management and ClearChoice.

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