I used to think credit cards were bad.
My guess is that they were meant for people who can’t afford what they need or want, so they put it on a credit card. Credit cards were for the shopaholics and financially incompetent Carrie Bradshaw and Rachel Green of the world. Especially if you add in factors such as annual fees, interest payments, and the very real risk of falling into deep credit card debt.
As a kid, I thought credit cards were a last resort. Now, for the first time in my 30s, I am learning that the opposite is true. Instead of saving our credit cards for infrequent, cumbersome purchases, many of us should make them our primary means of payment.
When used responsibly, credit cards are an ideal payment method for several reasons. Here are a few credit card benefits to keep in mind.
1. Credit cards protect your finances
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First is the initial shock and then the desperate repetition of your steps. Finally, panic sets in as you realize the terrible truth… your card is gone.
If you are like me, you have lost your card more than once. In fact, many of us have experienced this moment (and the cycle of emotions that followed), which is why credit card companies offer fraud and purchase protection.
If you find a bunch of fraudulent purchases on your statement or pay for an item and the seller never delivers the item, you won’t have to pay any bills. The card issuer takes the hit, not you. It can take a while to review a fraudulent payment report, but you can usually expect a clean rep.
Many credit cards even offer insurance coverage and benefits for major purchases such as cell phones and car rentals.
2. Credit cards earn you travel rewards or cashback.
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We’ve all heard the cliché: to make money, you have to spend money. Well, in the case of credit cards, this is partly true. When you make a qualifying purchase with your credit card, you can earn trip rewards or get a refund on your expenses…as in hundreds of dollars back!
The trick to using credit card privileges is to make sure you spend money responsibly. This means making sure you don’t spend more than you can afford and avoid having to spend money purely for rewards. In addition, and perhaps most importantly, always (I mean always) pay your credit card balance in full every month!
3. Credit Cards Offer Extended Guarantees
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Perhaps you were already in the habit of using your credit card to make large purchases and were well aware of how many points and membership rewards you would earn as a result. But credit cards also have many hidden benefits that you may not be aware of.
Among them, I’m sure you didn’t know (I certainly didn’t) that many credit cards offer extended warranties on large purchases. For significant expenses, such as a new stove or sofa, some credit cards, such as Capital One, provide an extended warranty in addition to the manufacturer’s warranty. Of course, there are coverage limits such as time and amount, so make sure you read the fine print before purchasing.
4. Credit cards increase your credit score.
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Chances are you know that you need a good credit history… but why?
Short answer: your credit report says a lot about your financial health. Think of it as a kind of GPA. Just as your GPA informs potential colleges and graduate schools of your academic history, your credit report gives landlords, lenders, and even some employers a snapshot of your financial history. If your score is low, these institutions have little incentive to trust or work with you.
To develop and maintain a healthy credit history, it is important to use your credit card frequently and responsibly. Always pay the balance in full, keep your usage rate low, and make sure you don’t spend more than you have.
5. Credit cards help keep track of purchases.
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Cash and checks certainly have their advantages, but these forms of payment have one significant drawback: it can be easy to forget where your money went.
On the other hand, credit cards (and debit cards) track your purchases. Every time you use the card, your online account is updated automatically, allowing you to easily control your spending.
In fact, many major credit card companies even classify your purchases. My account has an online “View Trends” button with a fancy bar chart and pie chart showing my shopping habits in a pair of clear and colorful images.
6. Credit cards prepare you for the future.
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A friend of mine recently saved up enough money for a down payment on her first home. Her lease expires in six months, and she met with a loan officer who wanted to start looking for a house. Unfortunately, she hit a wall early in the application process: no credit history.
Many of the important financial decisions you have to make require a good credit score in order to move forward. Whether you are considering buying a new car or dreaming of becoming a homeowner, having an established and reliable credit history is essential. But even small financial applications for property rentals, insurance coverage, or even employment may require a look at your credit history.
A credit card is the best and easiest way to start lending right now. For your own sake in the future, use your credit card frequently and responsibly.
Summary
There is a myth about credit cards that many of us, including myself, have heard since childhood: credit cards are bad.
I’ve always thought of my credit card as something to be used only on rare occasions, but the reality is far from the truth. Credit cards have many benefits, from cash back to construction loans. Their use is even safer with benefits such as fraud protection and purchase protection.
The key is to make sure you use your credit card responsibly, meaning you pay your balance in full each month and limit your spending to what you can afford. In the short term, you will be earning all sorts of points and perks with your credit card; but in the long run, it will set you up for bigger purchases like your first home!
Featured image: Dmitry Zinkevich/Shutterstock.com
