You may have heard that a credit card is essential when you travel abroad. Some of that advice has a solid basis. Some of it does not. Before applying for a travel credit card, it is worth understanding which parts are accurate.
What is commonly believed
- You need a credit card to hire a car or check into a hotel abroad.
- A credit card gives you protection if something goes wrong with a purchase.
- Applying for a credit card will not affect your credit score.
- Prepaid travel cards offer the same protections as credit cards.
- All credit cards charge fees on foreign transactions.
Which parts are true, and which are not
Deposits for car hire and hotels
Many car hire companies and hotels ask for a credit card to hold a security deposit. A debit card is sometimes accepted, but this is not always the case. If you are relying on a debit card, it is worth checking the car hire or hotel's policy directly before you travel.
This part of the advice is broadly accurate.
Section 75 protection on credit card purchases
Under Section 75 of the Consumer Credit Act 1974, credit card purchases between £100 and £30,000 carry statutory protection. If a retailer fails to deliver goods or services, or goes out of business, your credit card provider shares responsibility for the loss. As MoneyHelper explains, the protection applies where the total cost of the item or service is more than £100, not just the portion charged to the card. So if you pay a £50 deposit on a £200 holiday by credit card, the full purchase may still be covered.
This protection applies to purchases made in the UK and abroad, provided the transaction is charged to a regulated UK credit card. A regulated UK credit card is one issued under the Consumer Credit Act 1974 and authorised by the Financial Conduct Authority (FCA). Cards issued outside the UK, or some charge cards, may not qualify.
Debit cards do not carry Section 75 protection. Some debit cards offer a voluntary chargeback scheme, which is different. Chargeback is not a legal right and the outcome is not certain. Chargeback claims are also typically subject to a time limit of around 120 days from the transaction date, which gives it less practical reach than Section 75 for disputes that emerge later.
Prepaid travel cards
Prepaid cards are not credit cards. They do not carry Section 75 protection. They can be a practical way to manage foreign currency spending, but they should not be treated as a substitute for credit card protection on larger purchases.
Foreign transaction fees
Not all credit cards charge fees on purchases made abroad. A number of cards marketed for travel have no foreign transaction fee. It is worth checking the fee schedule for any card you hold or are considering, as charges vary considerably between products.
Applying for a credit card and your credit file
This is where the myth is most common.
Applying for a credit card involves a hard search of your credit file at one or more UK credit reference agencies (currently Experian, Equifax, and TransUnion). As Experian notes, a hard search is recorded on your file and stays there for 12 months, visible to other lenders. However, the scoring impact of a hard search typically fades within 3 to 6 months, even though the entry itself remains visible for the full 12 months.
A single hard search is unlikely to cause significant harm on its own. However, if you make several applications in a short period, the pattern of hard searches can be a concern to lenders. Each search is visible and each adds to that pattern. A rejected application still shows as a hard search, so it is worth being selective before applying.
If you want to check whether you are likely to be accepted before applying, some providers offer an eligibility checker that uses a soft search. As Equifax explains, a soft search does not appear to other lenders and does not affect your file in the same way. It is worth using this option if it is available.
If you are uncertain whether your credit file is in good shape before applying, checking your file with one of the three UK credit reference agencies beforehand may be a useful step. All three offer a free statutory report.
What to read next
- Credit reports and credit scores: what you need to know
- Credit cards: how they work and what to watch for
Sources
- MoneyHelper: Section 75 of the Consumer Credit Act (moneyhelper)
- Citizens Advice: Consumer Credit Act protection (citizens-advice)
- Experian: hard and soft credit searches explained (experian)
- Equifax: hard vs soft credit search (equifax)
- TransUnion: understanding credit searches (transunion)
- FCA: consumer credit regulation (fca)