Photo: Flickr / winterofdiscontent
When the topic of credit cards arise, some consumers are quick to disregard or shun them as a part of their personal finance strategy.In December 2011, U.S. revolving debt amounted to a total $801 billion, with 98 per cent of that debt stemming from credit cards alone.
With these exorbitant figures, it’s easy to understand why there is so much stigma around credit cards.
However, there are many credit card benefits that come from using credit — all of which have short-term and long-term implications for your financial future.
Reasons for Using Credit Cards
There are a multitude of reasons for why you would need credit cards in your life. If executed correctly and responsibly, credit cards can keep your financial history and outlook healthy.
Here are a few simple reasons why you should use a credit card.
1. Protection and Security
In the event of theft or loss, credit cards offer more security in that a simple phone call to the credit card company to freeze any transactions onto the card is all it takes to prevent further monetary loss and identity theft. Credit issuers will send a replacement credit card and you can continue making transactions without missing a beat.
The same cannot be said should you lose cash, as it is more difficult to trace. Similarly, debit cards can present further complications if lost or stolen, as they are directly linked to your bank account where your funds are stored.
Before credit cards gained their popularity, the common practice when making a large purchase was to remain patient and save your money until you had enough to buy the item. Credit cards give you the control to make big-ticket purchases without the hassle of waiting for months or even years.
This convenience should always be balanced with responsible and conscious use, however, as credit card debt can easily be amassed if spending is not tempered.
3. Global Usability
Even if you’re not a jet-setter, having the confidence of knowing that you can use a credit card (most major cards like VISA or MasterCard, anyway) anywhere in the U.S. and the rest of the world is a relief that consumers can rely on.
This lessens the confusion of converting U.S. dollars into foreign currency, as credit card companies perform the conversion for you. Of course, it’s still your responsibility to understand the conversion rate and/or additional fees associated with using your credit card internationally.
4. Tracking Expenses
Online credit card account tracking has made record-keeping and budgeting easier and more visual for consumers. In addition to knowing when your credit card bill is due, you can also review monthly transactions in e-statements and plan your monthly expenses in advance.
The ability to revisit your monthly statement archive helps you better organise and detect suspicious activity on your credit card.
5. Building Credit
If you have a dream home in mind a few years down the line, chances are you’ll need to take on a mortgage loan in order to pay for your house. However, without an existing credit history to vouch for your ability to pay back lenders on such a big loan, you may find it difficult to achieve this life goal single-handedly.
To build good credit, you need a credit card to demonstrate your positive track record for repaying your debts on time and up to the full amount over a specified term length.
6. Rebuilding Credit
It may seem contradictory, but a credit card can be used as a rebuilding tool if your credit score took a significant hit due to frivolous spending using plastic in years past.
After paying pre-existing credit card debt — and ideally, funelling money into a savings account — you can begin to rebuild your credit score with the help of small, responsibly managed credit card purchases and by paying balances off in full.
Credit cards don’t have to be an intimidating part of your approach to finance. All it takes is an informed credit card perspective to help guide good habits and practices.
This article is part of the Go Banking Rates Financial Literacy Movement, helping Americans get smarter and grow richer. Take our credit card quiz to test how knowledgeable you are!