Here's why: two debit cards, one for receiving money, one for spending money. Automated payment from the 1st one to the 2nd one once a month with a fixed amount you expect to spend in a month.
Nothing to pay off, you're spending your own money, can't be overcharged, can't go below zero, if someone leaks your spending card they can't touch the majority of your money, no scummy business practices.
Never owned a credit card, don't have the slightest wish to do so.
In the UK, it's really hard to get a bank account where they'll do that. Instead they'll pay it, call it an "unauthorised overdraft" and then charge you for that. This is their business model - it's how they make sufficient income to operate.
There are "basic bank accounts" which don't provide a credit facility, but these only exist because people with poor credit histories can't get bank accounts otherwise, and the regulator has threatened to enforce their availability otherwise. However since this means that there currently isn't any rule, the banks make it very difficult for an ordinary person (with good credit) to open a "basic bank account".
> In the UK, it's really hard to get a bank account where they'll do that.
I'm pretty sure all of them do, just ring up your bank and ask them to set your overdraft limit to 0
I've certainly done this with HSBC & Santander in the past, and when I got my Monzo account it was 0 by default (You had to sign up for an overdraft if you wanted one).
Specifically, the main protection is that if you buy something that turns out to be faulty or the company never delivers the goods, you can get the money back without going to court. You get the money back even if the company goes bankrupt.
Some banks offer similar things on debit cards, but it's always at the banks discretion rather than required by law.
There is no "inevitable forgot to pay it off". Last century when I was old enough I got a credit card and the bank set it to automatically pay off every month. The bank says to itself, full balance of this account this month is say £462.83 and must be paid on or before the 7th of December, then it sets a transfer to occur from my checking account for the amount £462.83 on the 7th of December. No "forgetting" possible.
Indeed if say an IT problem occurs and they can't do that transfer under UK law they eat the fees incurred. "The customer must be made whole".
As to fees, the merchant doesn't have to accept cards, as we see with Amazon, if they don't like the fees. Why should ordinary consumers care? When we were part of the EU the cards couldn't charge excessive fees, now Brexit allowed them to unlock this potential source of profit.
In the UK, credit cards are free (some specialist cards aside), including an automatic direct debit so you never forget to pay it off, so you never get charged interest.
Never paid a penny in fees or interest in over 15 years.... and an annual statement of fees (issued by law) informs me of this fact each year.
Same in the US. Credit cards are so convenient and free and come with rewards. Of course most people don’t realize until they are older that all that ‘money back rewards’ was essentially paid by themselves originally, by the vendor paying the credit card company a fee on every transaction. The issue is that credit card companies build in requirements to be endorsed that they don’t charge different prices for cash only transactions often.
Yes. Anyone paying fees on a credit card should jump ship, that's a huge red flag. And I've made more in cash back rewards than I'll ever pay in interest.
In Europe just using debit cards is perfectly viable in 99% of the cases, however when it comes to car rentals you are still in some locations forced to provide a 'real' credit card.
I write 'real' since most of the FinTechs like Revolut, N26 etc often issue debit cards that may fail in exactly that situation. It doesn't help if your account is flush with 10k USD and a car rental could easily block 2k for claims on your debit card, some will just not accept Revolut & co. Thus I am always forced to carry an emergency backup credit card from a major bank just to be on the safe side...
Very much looking forward to the day some other means of international payment (crypto?) will be generally accepted.
I am so fortunate to live a in a truly free country that has not yet caved in to most of the western crap despite being a western first world country. Spain.
Here the rental companies accept even cash, and the person who pays doesn't even need to be the same as the one who rents.
They require a credit card because credit card companies have robust ID and credit checking. If their ID checks weren't great, someone could steal the whole credit limit.
Banks and debit providers also do ID checks, as required by law, but don't check anywhere near as hard, since there is no way to steal money from the bank if your account can't go negative.
I know this is a thing in the US, but in Norway where I am from it doesn’t matter. Nobody gets a credit card here improve credit rating. I doubt people do they in most of Europe.
When somebody does a credit check on you they don’t get a score, only a remark on whether that person has done any negative with respect to their credit worthiness. Thus there is really only the negatives which count.
Credit reference agencies instead report credit history.
The difference is a subtle but very important one, as it allows companies to assess your individual circumstances, rather than base decisions on an arbitrary score.
The above misunderstanding is so commonplace that the Redit UKPersoanlFinace sub had (has?) a bot explaining this on every UK post mentioning 'credit score'. Here "credit scores" are instead a marketing gimmick launched by credit reference agencies to get consumers to subscribe to monitoring services. The 'score' they give is meaningless.
That's odd, I got a mortgage approved at 19yrs old, in the UK, with no credit usage/history whatsoever. I had a credit card but I'd held it for about 3 months at the time, and have never used it to this day.
Only since then have I actually had anything on my credit report (monthly broadband payment, phone contract, monthly car insurance payment because I didn't want to keep paying the whole 3k up front every year after moving out, etc) and despite that the score has remained unchanged.
Yes, a few banks now offer 95-100% LTV mortgages for first time buyers.
In our case, the bank required a savings account containing a 10% deposit in the name of a family member, which is returned to them with interest after 3 years (unless you fall into arrears). ~50% of that money was our own savings and the rest was from parents savings, which allowed us to get on the property ladder with ~1yr less saving and no cost to our families after the 3yr period.
It isn't that a lack of credit card hurts your credit rating, but that a lack of any credit hurts your credit rating in Canada or the US.
There are other ways to get an initial credit rating than a credit card, although I agree that this is the path most easy, and chosen by many to get that first rating.
The method I employed, was to buy a car and had a parent cosign. I made all the payments, and this was enough to kick start, and give me at good credit rating.
Ah but, for most people it's easier to get a low-limit credit card in the UK, than it is to get any other unsecured loan.
I also didn't say 'you need a credit card to get a good credit score', I said not having one will negatively impact your score. This is 100% correct; Your credit score is made up of various metrics on how you manage debt, one of which is credit cards. You will get a % boost if you have a card that you manage well, whereas without a credit card, you will get no boost at all in that category. Granted, you may make up for it overall in other categories, but in the main, for most people, my statement still stands. Credit scores start at 0, and only improve if you show you can manage debt across multiple products.
Hmm. I think the issue here is, we are all in different regions. Not only does the country matter (Canada here), bit the region too (Quebec, Napoleonic civil code, and provincial laws).
Credit bureaus are definitely legislatively controlled here, and court decisions have an effect on them too.
You can use direct debits instead of loans and are available for a really wide variety of payments, so is easier and safer than getting a credit card for many people.
Not only this, but getting a credit card and not using it can cause an issue for your credit, so it's better to setup direct debits and other forms of credit than it is to get a card you never use.
Considering the article is about the UK, I'm not sure how relevent US utilisation is in relation to it.
That aside, I didn't say low utilisation, I said no utilisation. This has a good chance of your card being cancelled by the card issuer, which has a negative effect on your credit.
Bottom line is, unless you plan to use the card, there are better methods of increasing your credit score, so it's not a good idea to get one.
The issue isn't not having a credit card, it's never having used any credit to create a good credit history. Setting up a few direct debits should work in lieu of getting a credit card.
The way this works in the US is nuts. I had to get a parent to co-sign the loan for my first car (or else they wouldn't lend me money at any rate), but then I spent a year paying a monthly fee to borrow my own money with a "secured credit card" and instantly I'm good for 40 grand, apparently.
That's not how it works in the US currently. You go through that process to get your first credit card, yes, but you do not get approved for $40k. My first card was $500. My best one now (with excellent credit score) is $5k IIRC.
If you got approved for $40k, there's something else funny going on.
Isn't it completely rational from the lender standpoint? First they make sure you will be profitable for them (involve other people who can be milked), then they offer you money and hope you can't pay back on time.
Maybe you displayed the ability to not go into debt unnecessarily, which could be also a signal of financial ability.
Getting into debt just to demonstrate you can pay it off is a bit like having to catch a virus so that the doctor can tell you you're healthy once you're done with it.
But it's true that in the era of negative interest rates, only silly people don't owe money.
I guess using the analogy — your doctor won't tell you "you've a great immune system" if you've never caught a bug at all. Maybe you've a really weak immune system, they just don't know.
Not going into debt unnecessarily is a great thing, but it's not a data point in your favour, it's the absence of a data point.
A credit rating basically isn't considered for a mortgage in the UK. They will check a report, and maybe request you pay outstanding debts (I was asked to clear my CC balance before completion both times), but unless you have a fraud marker or are bankrupt it won't affect you. Mortgages are secured on the asset, so it's far less risky than a personal loan of 5x less - the bank can seize the asset and force the sale of the home (and that difference in risk is reflected in the difference in borrowing rates).
My experience is they do indeed dig into your credit report and will approve/deny based on it. Not sure where your information to the contrary comes from?
Most UK CC T&Cs state explicitly "If you have a home, we will go after it if you default." Personal loans have similar recourse.
Neither are truly unsecured. It just takes longer than an outright repossession because it takes two or three court claims instead of just one.
The debt collection industry relies on this, and regularly forces sales of property to pay back CC and other debts.
So CCs are disastrous for people who can't pay their debts. Not only are the interest rates extortionate, but for lenders they're almost as safe as a secured loan. And because of the high rates they can be considerably more profitable.
I've not seen a credit card where you can't automatically pay the full balance by direct debit each month. You do still have to do some maths (actual balance = current account balance - card balance) but I don't worry about it not being paid off.
Which demonstrates that you in fact are bad with money, so the system is working as intended. If you don't trust yourself with day-to-day spending, why should a lender trust you with a loan representing months or years of income?
Keeping an eye on your spending is great, but you can equally do that with credit; it's easy to look at or download transactions in your credit card app or website. Unless of course you don't trust yourself not to overspend, in which case my point stands.
You are aware that interest rates have been incredibly low for years? They have to go up to keep a lid on inflation, and the BoE needs to be able to do that without worrying about mortgage borrowers being overstretched.
It's more correct to say that never having any credit facility negatively impacts your credit rating. I have a credit card now, but several years ago I didn't, and I had a perfect credit rating, by dint of the multitude of other credit agreements that I had for the general running of my life, like mortgage, telephone, internet, etc.
I guess he's trying to compartimentalize so that, if the spending account is compromised and depleted, the main-income one is untouched.
Seems like a lot of work to do what CCs do automatically. I guess the upside is that crazy spending is impossible (well, if you make sure to forbid negative balances on the spending account) and it's impossible to accrue interest.
There's a difference between having an arranged overdraft, and being able to have a negative balance (also known as an unarranged overdraft).
Monzo's own help pages explicitly state that your balance can go into the negative, because offline debit card payments will not be rejected. They'll also gladly take you into the negative if you owe them money (e.g. through a Monzo Plus or Premium sub, or use their Flex service).
Search Monzo help for "Unarranged Overdrafts".
As far as I'm aware, there is no UK bank that will guarantee they will reject all payments and never let you go into a negative balance on a debit card transaction. This is also a profit centre for them, so there's little motivation to actually do so.
The mandated fee-cap introduced a few years ago has (or rather should have) curbed the view that overdraft fees are a cost centre. Banks are extremely proactive now, as soon as there is a hint you'll go in the red they'll ping you in a bunch of ways and remind you of what you can and cannot do; so I wouldn't exclude that some (or all) might now refuse to complete purchases when it would push you too deep into unarranged territory, because they cannot charge you more than a fixed amount, so it would become basically a free loan.
I'm with Barclays and Lloyds, and neither can go into negative(well, technically they can I suppose, but it's extremely hard to do. Any debit card or direct debit transaction will just get declined if it's about to go below 0).
I haven't lived in Europe for a while but it used to be common to issue online-only debit cards (VISA Electron, Maestro etc) for this reason, have these fallen out of fashion?
The flip side to this is using something like an Amex which offers insurance, points, business lounge access and much more. Set up the card with diret debit (much like your automated payments) and never spend above what you can afford.
You now have perks, points, insurance, consumer protection and still zero worries.
It's pretty expensive to have an Amex card, I had one for a bit, but ended up not really using it so the £ they wanted seemed like a rip-off in the end.
The link I shared is a list of cards from Amex that don't charge any fee. Anecdotally the number of places that reject my personal amex is very close to zero (there's one cafe enar me which doesn't take it).
> I see no real reason why to use Amex over Visa or Master/Maestro
Cashback/rewards, and it's accepted on Amazon in the UK after this year is a really good reason to use it over Visa at least. Maestro is non-existant in the UK. Maybe mastercard is a better choice, but I carry two cards _anyway_ , so one might as well be an Amex, and the second should be a mastercard?
Majority of hotels around Europe don't accept it, same with restaurants, small business, shops.. there is not a single reason to own one in Europe, even with cashback (cashback to what actually, since i cannot use it anywhere)
I've travelled around the UK, Ireland, France, Spain, Italy and almost exclusively used my Amex over the last 5 or so years.
> Majority of hotels around Europe don't accept it, same with restaurants, small business, shops
I completely disagree. Almost every restaurant, hotel, cafe takes it. All major airlines accept them, the major train operators accept them, the major hotel booking sites and airbnb both accept it.
> there is not a single reason to own one in Europe, even with cashback (cashback to what actually, since i cannot use it anywhere)
Well there is, cashback, and contrary to what you're saying it _is_ usable in europe. You can book a flight with Ryanair, a train on trainline, hire a car via hertz/sixt/europcar, book a stay with airbnb/booking/hotels, and eat out in restaurants and local cafes all with an amex.
I spend on business travels around Europe 1/4 of the year, 2 years ago we were moved from Visa to Amex and the company reversed the move after 1 month back to Visa.
Couple of major hotel chains didn't accept the Amex.
In Dublin specifically I had huge issues with Amex, not to mention Germany and Scandinavia.
It was just bad experience all together
What about all the free money you're leaving off the table in miles and cash back? I've had a credit card for about 3 years, and while it isn't much, I've never paid a dime in interest and I'm up roughly $800.
Perks on credit cards in the UK are almost non existent because the fees are so low compared to he US. Historically the EU regulated to crush credit card transaction fees.
That said, I do get annual cashback of 1% on one of my cards.
Big corporations giving people free money sound kinda unbelievable, don't you think? They must actually make money on card holders for this to be profitable. The obvious way is that some people will overdraw sooner or later, the other is that people with credit cards simply tend to spend more (some say about 10-15%). The average credit card debt in the USA is more that 6000$.
The "average credit card debt" is a bit difficult to really measure. That isn't necessarily the amount of interest bearing credit card debt which IMO is the real concern.
I've have some credit card debt, none of it carries any interest. When I buy appliances or furniture I usually take the interest free financing despite having the ability to pay. Why pay a few grand today when you can spread that out interest free for 2 years and let that value appreciate? I would have lost out on tons of money if I had sold investments up front to buy those goods. So instead of getting rid of all that money a year ago, I got 30% gains in the market.
Don't most people do this with a credit card they pay off most months? This is what I do plus credit cards give more protection than debit cards.
I have the majority of my net worth invested at one of my brokers and I tend to hold minimal cash in my bank account...better to be invested than hold cash these days.
How is this better than having a single credit card that gives you automatic protection and insurance on everything that you buy without having to think to stay under your self imposed limit otherwise you have to manually top up the card with the amount that you need to spend?
Sure, I've taken out loans, had several mortgages, multiple bank accounts, paid all my utility bills. All of that can influence your credit scores.
It is possible some people could have so little credit history that having a card for a while might be beneficial. I don't know enough about the system to be sure, so maybe I was being a bit flippant, for which I apologise.
It's wildly overstated in the US. Having a CC and not paying it off in a timely manner definitely affect your score but the difference between having a card and not having one isn't as big as people make out.
If you have proof of income you're going 90% of the distance.
My mom has exactly the same system with her two debit cards and I have not taught her that - she is naturally smart. So proud of her and you too ;) Cheers!
Nothing to pay off, you're spending your own money, can't be overcharged, can't go below zero, if someone leaks your spending card they can't touch the majority of your money, no scummy business practices.
Never owned a credit card, don't have the slightest wish to do so.