Photo: Flickr / SimonQ錫濛譙
While credit cards are fairly ubiquitous, they are from time to time criticised for being conduits to debt and blamed for tough economic times.It’s true, you shouldn’t use a credit card if it will lead you to spend beyond your means, and a pervasive lack of transparency from credit card companies did complicate things during the recession.
However, much has improved since the CARD Act– a law that improved consumer rights and transparency in the industry – took effect in February 2010, and credit cards really can be useful. In fact, there are myriad reasons to love credit cards, and five of the biggest are laid out below:
1. Credit Building – If you have an open credit card account in your own name, information will be added to your files at the three major credit bureaus (Experian, TransUnion, Equifax) on a monthly basis. That’s whether you actually use the card to make purchases or not. And that is why a credit card is the most efficient credit building tool around. So, whether you make purchases (and on-time payments!) with your card or not, make sure to at least have an open credit card in good standing. Given the importance of your credit score, a lot depends on it (e.g. mortgage and car insurance rates, ability to lease a car or rent an apartment, job prospects, etc.).
2. Interest – It’s often impossible to make big-ticket purchases (e.g. a sofa, refrigerator or car) in cash. If you don’t have a credit card, the options left to you—loans and financing deals—will likely have high interest rates. Zero per cent credit cards help you avoid interest for as long as 21 months.
3. VIP Treatment – Certain credit cards with rewards provide access to airport lounges, concierge services, rental car insurance and even office space for travellers. Many offer status points or miles as well, which can help brand loyal consumers move up the status ladder in their loyalty rewards program of choice. Credit card memberships can also score you exclusive deals and access to tickets for concerts, shows and sporting events.
4. Fraud Protection – Both credit cards and debit cards provide $0 liability guarantees. However, since money is removed from your account as soon as a debit card is used, you might not notice unauthorised charges before making payments to your monthly obligations. If any payments do not go through or checks bounce, you’ll have much more on your plate than simply contacting your bank to sort out the fraud. With a credit card, you don’t have to submit any payments for at least 21 days after receiving your statement, which means you will have plenty of time to report and remove from your bill any unauthorised purchases before they have unfortunate peripheral effects.
5. Business Perks – Business credit cards help small business owners track and manage business spending as well as provide employees with custom-limit cards and earn rewards on their spending. Theydon’t have legally-mandated protection under the CARD Act and are therefore ill-suited to spending that leads to an end-of-month balance (interest rates on existing debt can be changed at any time, unlike with personal credit cards). However, business credit cards with rewards are the best tools for handling purchases that you pay for in full within a single billing period.