Greetings! In this post, we’re going to talk about why you should have a credit card. I recommend that everyone who can responsibly control their spending gets a credit card.
Having a credit card and using it responsibly is a great way to build a credit history and raise your credit score, which benefits you in dealing with future credit needs, such as low rates on mortgages and other loans.
Benefits of Having a Credit Card
There are many reasons to get a credit card, as long as you use the card responsibly. We’re going to talk about multiple reasons below, but in short, the benefits mostly outweigh the drawbacks, as long as you are careful with how you use your credit card.
1. Credit History
First and foremost, you’ll build credit history each month. Your credit score is greatly affected by your history of on-time payments, so if you use a credit card and pay on time every month, your score will rise.
Having good credit, (e.g., a higher credit FICO and Vantage score) can help in any situation where credit is needed, such as getting a better interest rate on a mortgage or auto loan or when getting quoted by some service providers. You can track your credit scores once per year from all three credit bureaus by getting your free credit report.
Some employment places also check credit scores to determine if they feel they can trust you with financial decisions.
2. Rewards Programs
Cardholders of rewards credit cards often give cash back and/or rewards programs. This is essentially your credit card paying you to use it. If you get 2% cashback, that means for every $1 you spend, you get 2 cents back.
Reward programs include gift cards and discounts among various categories, including travel, food, retail outlets, gasoline, and more. Earning rewards is an excellent way to maximize the benefits of your credit card.
3. Track Your Spending
Credit card issuers will also provide you regular statements and an end of year statement that helps you track your spending. You will accurately be able to determine where your money is going. Perhaps you spend too much on eating out.
A credit card year-end summary will show you that. You can also easier track subscriptions and other reoccurring expenses on your credit card statements.
4. Fraud Protection
Your card issuer will provide fraud protection, as well. If someone steals your credit card and uses it, you can call the credit card company, and they will place a hold on all charges and do an investigation.
If the investigation shows that you were the victim of theft and/or fraud, you won’t be charged for the transactions. This is different than if your debit card is stolen, where if money is withdrawn via your debit card, there is much less you can do about getting reimbursed.
5. Extended Warranties
Many credit cards offer extended warranties on specific items, which is great if something happens to your purchases. This may also include if you purchase something where the item is damaged. Try reaching out to your credit card company and see if you can get reimbursed.
6. Complimentary Travel Insurance
Many credit card companies will offer you complimentary travel insurance when you book a trip on your credit card. This saves you the added cost of adding travel insurance on various bookings such as airline tickets. If you travel a lot, make sure your credit card offers complimentary travel insurance.
7. Easy Access to Online Shopping
Having a credit card allows you to access online retail stores with great ease. Whether you’re shopping at a big website like Amazon or a local online store, you can use your credit card to buy what you wish without ever leaving your house.
8. Signup Bonuses
Many credit cards come with signup bonuses. This may include a rewards point bonus if you spend a certain amount of money in a specific period of time. Make sure you check the terms and conditions to ensure you’re getting a good value by taking advantage of a given credit card’s signup bonus.
Drawbacks of Having a Credit Card
Having a credit card is not without drawbacks.
1. Interest Charges
If you don’t pay your balances every month, you will incur interest charges, which can add up fast and cost you a lot of money. This type of credit card debt can wreck your finances.
You can avoid paying interest by paying off your entire balance before the end of the grace period. Another option is transferring an existing card to a new credit card with a 0% introductory APR. These are what’s called balance transfer cards.
2. Missing a Payment
Your credit score will take a hit if you miss a payment or have too high of a balance. To ensure that you don’t take a hit to your credit score, keep your balance low, and never miss a payment.
3. The Dangers of Cash Advances
Credit card companies often offer cash advances, but they come with fees and high interest rates and are not recommended. In fact, never take out a cash advance unless it’s an absolute emergency.
4. It’s Very Easy to Overspend
Credit cards give us the ability to spend money with great ease. Because of this, you might not realize how much you’re spending each time you swipe your card, which can lead to a nasty surprise when you get your statement at the end of the month.
Wrapping It Up
With all the benefits of having a credit card, I believe most people should have one. That said, if you feel like you can’t use a credit card responsibly, or if you’re already having debt issues, you might want to steer clear for the time being.
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With some credit cards giving you rewards that essentially pay you to use the card, it’s easy to see why credit cards, especially cashback or rewards cards, can be great tools in your financial arsenal.
What are your favorite benefits of the credit card(s) you use?