Why use credit cards? Other payment options, such as debit cards and cash, may seem like an easier way to stay on budget. Credit cards are notorious for encouraging cardholders to spend money they don’t have, especially when tempting offers come in the mail.
But here at Money Under 30, we believe a good credit card is essential. When used responsibly, credit cards can be beneficial to your financial well-being. In fact, smart credit card holders can earn money just with your card.
So what are the benefits of a credit card and how can using one help you get ahead? Here are 12 ways.
1. They build a credit history
Perhaps the most important reason for getting a credit card is to build up your credit history.
Credit scores taken from your financial records are essential if you plan to borrow money. These estimates are partly taken from your credit card history.
Unlike debit card use, credit card use is reported to bureaus that track results. A track record of paying your credit card balance on time helps your score a lot. And the longer you use credit cards, the better you will build your credit history, improving your score even more.
Read more: How Credit Works: Understanding the Credit Reporting System
2. They may offer signup bonuses
As a welcome gift, many cards offer signup bonuses. You usually need to spend a certain amount (sometimes over a period of time) to receive the bonus, so read the fine print. But it’s still an invaluable bonus.
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Right now, Chase Sapphire Preferred® Card has a promotion offering 60,000 bonus points after you spend $4,000 within the first three months of opening an account.
Read more: Best Credit Card Registration Deals
3. They refund money
When you shop with a cashback credit card, you get a small amount of money back. Cash reward can range from 1% to 6% of the purchase amount. It may not sound like much, but over time, these rewards can add up to a significant bonus.
Read more: The best cashback credit cards
4. They offer reward programs
There are almost as many bonus programs as there are cards. The trick is to find a rewards program that matches your existing spending habits or works with a retailer you already like.
Rewards programs may include, but are not limited to:
- Point system cards. You earn points based on how much you spend and redeem points for gift cards or other rewards.
- Frequent flyer cards. You earn miles every time you fly and can use them to get discounts on future flights. These cards may offer lucrative signup bonuses.
- Travel bonus cards. They offer “credit card miles” – a little different than frequent flyer miles, but still reward travel.
- Reward cards for daily expenses. These cards earn you rewards in general spending categories such as restaurants, gas, or groceries. This type of card can be handy for users who don’t travel much but still want to get the most out of their card.
Citi Premier® Card is one of our favorites for reward style perks.
Read more: Credit cards with the best rewards
5. They track your spending for you.
Want to improve your budget? Credit card statements are a built-in expense tracker. Your purchases are recorded online with all the information you need – where, when, how much and how often you spend. Some card companies keep records of your spending for years.
This benefit becomes especially useful during tax periods. By having one report of last year’s expenses already completed, you’ll save time and effort on paying taxes. Business expenses, property rentals, charitable contributions, and more complex tax returns all show up on your credit card statement.
Read more: Credit Cards Can Be Your Most Powerful Budgeting Tool – Here’s Why
6. They protect against fraud
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One of the biggest advantages of credit cards over debit cards is the level of fraud protection they offer. For example, Chase Freedom Flex℠ protects your account by monitoring in real time for possible signs of fraudulent activity.
Let’s say your credit card is stolen or someone found your card information online. Even if the thief immediately starts making purchases using your card, you won’t lose much money, as credit card charges are not taken immediately.
Once you notify your card company of the theft, they will suspend your card and investigate. You are not responsible for any fraudulent purchases made during this time. The Federal Credit Card Protection Act will protect you from losing large amounts of cash. The maximum you can potentially be held liable for is $50. And if you report it before making a purchase, or if your credit card company has a zero liability policy for fraud, you have nothing to lose.
Now say your debit card has been stolen. Since the debit card is debited instantly, any money spent on fraudulent purchases will disappear. As a result, scheduled automatic payments may be cancelled. If you report the theft within 60 days, transactions may be reversed and money restored. But this takes time and can be far more damaging than stealing a credit card.
Read more: The 5 Biggest Dangers of Debit Cards
7. They let you transfer your balance
When you transfer a balance, you move your debt from one credit card to another. Other debts, such as auto loans and monthly installment payments, can be transferred to a credit card with a balance transfer.
Of course, you still have to pay what you owe. But if you transfer the debt to a card with a lower interest rate, you will save money over time. Balance transfers can also consolidate debts and make your life easier.
Read more: Best Credit Cards for Balance Transfer
8. They may come with purchase protection
Consumer protection is a huge benefit of many credit cards. If you buy an item with a credit card and later find it is damaged or of poor quality, you can return the item and charge.
Credit cards can also offer extended warranties on electronics, furniture, and other items you hope to use for a long time. In many cases, the card doubles the manufacturer’s warranty. Be sure to keep your receipts!
9. They have built-in grace periods
Basically, credit cards offer interest-free credit for 30 days or less. Unlike debit cards, credit cards do not require immediate funds to purchase. You have a grace period to negotiate payments.
Use this grace period wisely, as credit cards work best if you pay the full amount each month.
Read more: How grace periods work and how they can work for you
10. They choose insurance.
Check out the consumer protection your credit card offers. Chances are you’ll find benefits you didn’t know about.
In addition to extended warranties and purchase protection, many cards offer return protection, rental car insurance, and travel insurance.
Read more: Should I get a credit card just for insurance payouts?
11. They are universally recognized
Speaking of travel, your credit card is your best friend when you travel. Accommodation and car rentals are much easier to book with credit than with debit. Rental services usually hold up several hundred dollars on your card. This hold can be inconvenient with a debit card.
Credit cards are also more readily accepted than debit cards worldwide. If you are traveling to another country, plan to use the lower exchange rates on your credit card instead of paying higher cash exchange rates at airports.
Read more: The best credit cards for international travel
12. They have less fees
Credit cards do not incur overdraft fees or separate transaction fees as debit cards do. While credit cards may have annual fees, rewards and the cashback you earn can void them. Chase Freedom Flex℠ is the clear winner here as there is no annual fee.
Read more: Is an annual credit card ever worth it?
If you can use a credit card responsibly, there is no reason not to. The benefits of a credit card include rewards, security, and convenience, as well as regular reporting to credit bureaus, making it easier to get a loan.
Using a credit card wisely can save you a lot of money and protect your money while also adding some perks. Not a bad payback for one method of spending!