You might have been warned not to open a credit card at some point in your life. While you should take into consideration this warning, it’s not necessarily advice that everyone should follow. If you are responsible with spending, self-disciplined and debt-free, you should have no problem using a credit card. In fact, using a credit card may offer you some appealing benefits.
Credit cards, like debit cards, offer convenience. Having a credit card in your wallet means that you don’t have to carry cash around and you don’t have to quickly write out a check to someone when making a purchase. Unlike debit cards, however, you do not need to have the sufficient amount of money in your account at the time of purchase. This means that if you come across something you’ve had your eye on, like a computer, that suddenly went on sale, you won’t need to wait to transfer in the funds from your savings account, or wait until your next paycheck clears to make that purchase. You can purchase it right then, and pay for it later. You should, of course, be smart and responsible and only charge an expense to your credit card if you know that you can afford it.
2. Building Your Credit Score
Using a credit card can help you build or improve your credit score, if you use it responsibly. As long as you pay the minimum amount due on your credit card regularly and on time, you can build up credit or improve your score because credit card companies will report your payment activity to the credit bureaus. Debit card use does not appear on your credit report, so it will not help you build your credit. Having good credit will be important if you plan to buy a home, rent an apartment or take out any loans.
(Also read: Easy Tips For Building Up Your Credit Score.)
3. A Grace Period
If you pay with cash or a debit card, you’re parting with your money right away. If you charge your expenses, you are delaying your payment, until you get the bill. Having this grace period provides you with a few benefits. First, you could keep your money in an interest-bearing account for an extra 20 days or so. This might just seem like a little extra money, but it will add up over time. In addition, having a grace period means that you don’t have to constantly watch your bank account balance to make sure you have the money.
4. Theft and Fraud Protection
If someone steals your credit card or uses it fraudulently, it doesn’t mean you’re out that money. You just notify your credit card company of the fraudulent activity and withhold any payment on the transactions until the company resolves the problem. When you use a debit card, however, the money that gets spent if it’s stolen is missing from your account right away. This means that other payments you make, such as any scheduled online payments for bills, or any checks you already wrote could bounce, triggering insufficient funds fees. It can be time-consuming for fraudulent activity on your account to be reversed and the money restored to your account. In the meantime, you have bills and other expenses that you can’t put on hold. With a credit card, you don’t have to worry about any of this.
(Also read: 8 Insurance Polices You Don’t Need.)
Most credit cards automatically include a wide variety of consumer protections, such as rental car insurance, travel insurance and product warranties that may exceed the manufacturer’s warranty. For example, American Express offers rental car loss and damage insurance, and travel insurance that includes coverage for trip cancellation and interruption, baggage loss and delay, and global medical protection, depending on the type of plan. If this kind of insurance appeals to you, check with a few credit card companies to see what plans they offer.
6. Sign-Up Bonuses
Many credit card companies offer major bonuses when you sign up for the credit card and meet some kind of spending requirement. For example, the Chase Sapphire Preferred credit card offers you 40,000 points when you sign up after you spend $3,000 within 3 months of opening your card. If you don’t spend that much in 3 months, there are other options to choose from that don’t require you to spend as much. The Southwest Rapid Rewards Plus and Premier credit cards offer 25,000 sign up bonus points after you spend $1,000 in the first three months of opening an account.
Earning points and other rewards can add up if you use a credit card for much of your household purchasing each month. Under most programs, you can earn a certain amount of points per every dollar spent. You can use these points to redeem gift cards, flight miles, and other rewards, depending on the card. Some rewards plans even offer cash back, which means they’ll award you with a certain amount of money after a certain amount of points accrue.
(Also read: The Pros And Cons Of Rewards Cards.)
8. Widely Accepted
Another benefit of using a credit card is that they are usually widely accepted. Some purchases are easier to make with a credit card versus a debit card. Rental car companies and hotels, for example, tend to prefer that customers pay with credit cards so it will be easier to charge them for any damages they cause. If you pay with a debit card, the company may insist on putting an amount of money on hold as a security deposit.
When You Shouldn’t Use your Credit Card
While credit cards certainly offer advantages over debit cards, there are some instances when you should not use one. If you cannot pay your credit card balance or the minimum amount due on time, you should not use a credit card. You should even avoid using a credit card when you cannot pay the entire balance—not just the minimum. Keeping a balance on your card will rack up fees from interest rate payments. You should also avoid using a credit card if you tend to be an irresponsible spender or if you don’t keep track of your spending. Since it doesn’t feel like you’re spending your actual money right then, it’s easy to rack up a large bill, which could end up getting you into debt. If you decide to use a credit card, make sure you keep track of your spending and make sure you always have enough money to pay off your bills.
(Also read: Debt Management Advice & Tips To Follow.)
There are many advantages to using a credit card, and few downsides, if you know how to use it responsibly. Even if you don’t know how to use a credit card responsibly, the amount of benefits they offer provide you with an incentive to work on improving your spending habits. If you decide to open a credit card account, do some research and decide what benefits are important to you, and which cards offer those benefits. With so many credit card options available, there is most likely one out there that will fit your needs.