Credit card use may be ramping up

Despite high credit card interest rates, consumers appear more willing to use their cards than they have been in the recent past. Credit card usage at some stores in 2013 jumped compared to the same period in 2012. The report measures consumers' same-store spending and how they choose to pay.
Consumers also increased the overall amount they spent. Consumer spending growth bounced back despite increased payroll taxes and other headwinds facing consumers. Looking forward, sustained consumer-spending growth remains in the balance as consumers are reducing their savings and are shifting more spending onto credit cards.

The 3 Most Common Misunderstandings.

1. My credit score will nosedive if I check my own credit report. In fact, the biggest stumbling block to sound credit health is the inertia associated with conducting proactive spot checks.

2. Credit card companies are the final authority when it comes to reporting.

3. Credit card interest rates are etched in stone. Interest rates fluctuate. Issuers use a variety of methods to compute your interest rate.

Fraudulent credit card protection offers

The thought of someone getting your credit cards and charging thousands of dollars to them is alarming. There are companies that are trying to ease such fears by offering credit card protection programs. Credit-card protection offers are popular with fraudulent promoters who are trying to exploit consumers’ uncertainty. In some cases, scare tactics and misleading information are used to sell protection that is not needed. Some scam artists even claim to be connected with your credit card issuer and ask you to verify your account number to make sure you are protected.

Best credit card offers for 2012

Credit card offers have gotten downright mouthwatering as issuers compete for the best customers. Consider the battle between Citi Dividend Platinum Select and Chase Freedom Visa. Both provide 1 percent cash back on all purchases and the chance to earn up to 5 percent cash back on selected purchases every quarter. But that's not the good part. If you spend $500 within the first three months of holding the card, either credit card company will give you a $200 bonus.

What's the difference between the two cards? If you're a really big spender, the Chase card is better because it doesn't limit the total amount of cash-back rewards you can earn in a year. Citi caps its cash back (not including the bonus) at $300 per year, so if you charge more than $30,000 annually, you'd run out of rewards.

Prefer travel rewards? Chase, Citi, Capital One and Starwood all offer credit cards that will provide bonuses worth $100 to $500 in the first year. The catch is that most of these cards have annual fees, but they are waiving them for the first year for new customers. Why so generous? Reward customers are less likely to switch, so the card issuers figure they'll get back these generous giveaways after a few years of charging the annual fees.

Those who carry a balance on a credit card, however, would be best off looking at Slate from Chase, which is providing a 0 percent introductory interest rate for the first year, with no balance transfer fee.

Credit vs debit cards.

Money experts say debit card transactions are for everyday purchases: gas, a cup of coffee and recurring bills. Credit cards should be used for large, occasional expenses.

Particularly travel related activity: Airfare, hotels, rental cars and things like that. When the transaction is very large, it can put a hold on the funds in your checking account, and that could cause problems with paying your mortgage, utilities and things like that.

Credit cards also offer protections that don't come with a debit card, such as travel insurance, extended product warranties and the ability to dispute a charge.

Credit cards are far better for online transactions because you can challenge a transaction if the product was never delivered or was defective. Also, if someone gets your debit card number, they could drain your checking account balance, leaving you without money to pay your rent, mortgage or other critical bills.

Another question financial professionals frequently hear is how many credit cards should a person have. Svoboda says four should be average. And always keep the one you've had the longest.

You want to have backups. Networks go down, magnetic strips go bad on the back. No consumer wants to be stranded, so it's a good idea to have a couple - but never more than what you can actually keep track of.

Credit and debit cards both convenient and dangerous

Credit and debit cards offer great convenience, but choosing the right option at the right time can help protect you from unwanted charges and scams. Many credit cards carry zero-liability policies, so users are able to dispute unauthorized charges. Debit cards typically carry limited-liability policies requiring cardholders to cover a percentage of lost funds. Your BBB shares five dangerous situations for credit and debit cards, including:

Shopping online: There are potential risks with buying online, such as shared wireless networks, unsecure Internet connections, data breaches and hackers. Review companies carefully, read privacy policies and make sure sites are secure before releasing payment information.

ATM withdrawals: Scammers can tamper with automatic teller machines (ATMs) and card terminals by installing skimming devices over card readers and mounting miniature spy cameras to steal card information. Only use monitored ATMs in well-lit areas. If something doesn’t look or feel right, walk away.

Dining out: Restaurants, bars or food delivery services can keep customer payment information on file or hold cards for tabs. If cards are out of sight, they can fall into the wrong hands; cards can get overcharged or used without permission. Monitor statements regularly for unauthorized charges.

Automatic recurring payments: Many service providers like gyms, phone companies and utility services offer the option of setting up automatic deductions from your account. Forget these payments and you risk overdrafts.

Travel arrangements: Many hotels and rental car companies place blocks on accounts to ensure money will be available when it’s time to process payment. Blocks can cause your account to overdraft if the block is for more than anticipated.

Why credit cards are better than payday loans

More and more borrowers unable to borrow money traditional ways have turned to payday lenders, and that's only going to continue, according to PricewaterhouseCoopers' Precious Plastic 2012 report.

Payday lenders have had some bad press of late. If the 3,000% APRs weren’t bad enough, payday lenders have been accused of targeting poor students, sick pet owners and cash-strapped Casanovas in their bid to persuade people to take out the high-cost loans.  

Here's six big reasons why:

Rates
Payday loans are expensive. Even though using APRs to compare payday loans against other forms of credit is a bit unfair due to their short-term nature, they are still an expensive way to borrow.

Flexibility
Credit cards are a rolling form of credit. This means that, as long as you make the minimum repayment each month, you can repay the debt whenever you want. The same goes for bank overdrafts; you can pay them off when you like.

Cheaper long-term borrowing
Continually rolling over payday loans and taking new loans to pay off existing loans can lead to a downward spiral of debt.

Extra protection
Section 75 of the Consumer Credit gives you extra protection if you make a purchase of £100 or more on a credit card and something goes wrong.

Your credit history
If you have a credit card and make repayments on time, it can improve your credit score and make it easier to borrow money in the future.

Borrowing amount
If you take out a payday loan you’ll need to pre-empt how much you’ll need to borrow; for example, £100 or £200. This might be more than you actually need. But if you use a credit card to make a purchase you only borrow the exact amount you need.