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Credit cards can offer cardholders convenience, security, rewards, and the ability to build a healthy credit history. They also require taking risks: the tendency to spend too much money runs the risk of getting into debt quickly and further risks damaging personal credit history. When these risks are properly mitigated, which can never really be done completely, credit cards can offer a safer and more lucrative means of payment than cash or debit cards.
With responsible use, cardholders can avoid debt and see an improvement in their credit rating. Here are five reasons why almost all purchases should be made with a credit card.
Visa and Mastercard credit cards are accepted almost everywhere. American Express and Discover are widely accepted in the United States. Acceptance across the United States makes credit cards a convenient method of payment for everyday purchases. Credit cards can be used in person, online or over the phone.
Ease of use is a double-edged sword. It’s easy to get carried away when paying with a credit card. You should monitor your balance regularly to make sure that you are not spending over your credit limit or over your budget. Most card issuers have an online portal or mobile app that cardholders can access to track their spending. Paper statements are still mailed to those who opt for monthly mail, but checking a balance online can reduce your carbon footprint, even marginally.
Mitigate the risk of not being able to pay your credit card bill by only paying for the things you could afford with the money you already have. If you have a $ 10,000 credit limit and can’t wait to buy a $ 5,000 TV that you wouldn’t normally be able to afford in cash, you better forgo the TV and save that money for another day. to avoid the risk that you can not. to pay it off before it starts to earn interest and cost even more.
Almost all credit card issuers offer no fraud liability to cardholders, but are legally required to limit fraudulent charges to the consumer to a maximum of $ 50. If you detect fraudulent activity on your account and report it immediately, you likely won’t be responsible for the stolen funds. The issuer will generally refund any amount fraudulently charged to the card and reissue a new card and card number.
Many issuers have sophisticated alert systems that will notify the cardholder by text, email, or phone when suspicious activity is detected. Cardholders can confirm or decline purchases and avoid financial liability.
Not all debit cards offer this type of protection, which makes credit cards especially useful at gas stations or other merchants where it is common for thieves to set up a swiping machine that steals card information from the debit card. credit. Shopping online is also safer with a credit card for the same reasons.
3. Bonuses and rewards
Earning welcome bonuses and rewards through credit cards is an attractive part of applying for and using credit cards. Cardholders should be careful not to âwrap and burnâ cards just for bonuses, as this is often a red flag to future lenders.
Credit cards with a big welcome bonus usually require an above average credit score and a substantial credit history. New cardholders can earn tens of thousands of points after spending a predetermined amount during their first few months of card holding and these points can often be redeemed for travel, meals, hotels, vacation rentals. car, money or everyday purchases. Remember, however, that spending more money than you would normally spend just to earn rewards is an easy trap to fall into – earning a bonus for spending money you wouldn’t spend. normally does not usually have a beneficial financial result when it comes to time to pay your credit card bill.
Some cards offer generous cash back rewards for purchases made at grocery stores, gas stations, drugstores and other merchants. The Discover itÂ® Cash Back, for example, offers 5% cash back on daily purchases at different locations each quarter up to a quarterly maximum of $ 1,500 in spend when activated. Plus, get unlimited 1% cash back on all other purchases – automatically. Cash Back Rewards can sometimes be cashed in the form of a check or they can be applied to the credit card balance.
4. Other advantages
Some cards offer benefits beyond rewards and welcome bonuses as long as qualifying purchases are made with the credit card. Some of the best travel cards offer travel insurance such as trip cancellation protection and baggage loss insurance. For example, the Chase Sapphire PreferredÂ® Card provides primary car rental insurance if the cardholder rents a car with the Chase Card.
Some credit cards may offer extended warranties or purchase protection on expensive items like mattresses or televisions. Partnerships with selected merchants can also benefit the cardholder by giving them access to discounts or exclusive benefits.
Chase Sapphire PreferredÂ® Card
Reward rate up to 5X
Earn 5X points on trips purchased through Chase Ultimate RewardsÂ®, 3X points on meals and 2X points on all othersRead more
100,000 bonus points
15.99% -22.99% Variable
Excellent / Good (700 – 749)
5. Construction loan
Perhaps the most important benefit of owning and using a credit card responsibly is creating a healthy credit history. Without a credit card account or without taking out a loan with the required monthly payments, it is difficult to build a substantial credit history.
Having at least one long-term credit card lets lenders know if you are likely to be an at-risk borrower. By making payments on time and limiting their use of credit, it’s possible to show them that you won’t. This is especially important when taking out a mortgage or car loan. Banks will do a full investigation to look at how an applicant has handled their debt in the past and without a credit history applicants are unlikely to be approved.
If you pay off a balance on time each month and keep your credit usage rate low, you will see your credit score increase over time.
Making daily purchases with a credit card offers a variety of benefits. Credit cards provide convenience, security, and opportunities for cardholders to earn cash back and other rewards. Always check the card conditions or call the number on the back of the card for details of rewards and bonuses.
Owning at least one credit card and using it responsibly is one of the best ways to build a healthy credit history. Try not to overspend so that it is easier to pay off the balance each month. Avoiding fees and interest is a sure-fire way to increase credit scores and stay out of debt.