A credit card is a useful financial tool when used responsibly. Looking at an overall financial picture, a credit card is able to provide a small loan, on demand, that can be used for endless purposes.
But with the power of a credit card, also comes the responsibility that this tool gets used properly, for the right things, at the right times. And also in amounts that the user is able to make payments on the bill (or simply pay it off) when it arrives.
If you keep this in mind, a credit card is an important part of an individual’s overall financial toolbox, and quite frankly, it is pretty hard to be without one these days. Keeping this in mind, there are plenty of benefits to having a credit card - but also heed our words of warning.
- Just want to see what you can get now? Check out the best credit cards to apply for
Improve your credit
There are plenty of benefits to having a good, or even excellent credit score. The obvious one is when you go to take out a loan, having a better credit score will allow a lender to make the loan at a lower rate. Not as obvious, but a higher credit score also figures into getting the best price when leasing a car. Even more obtuse, is the fact that car insurance companies figure your credit score into setting your car insurance premiums, and many employers use it for hiring decisions.
Your credit score gets determined by your credit history, in terms of how much you borrowed, and the payment history. It is not quite rocket science to realize that when you make your payments on time to the credit card company the credit score increases, and when payments get missed your credit score gets dinged as these missed payments get reported to the credit bureaus. Especially for a younger individual just starting out, an easy way to build credit, before you need to take out your first mortgage, is to get a credit card, and pay the bill consistently on time.
Consumer protection on your purchases
To encourage credit card use, credit card companies offer a suite of services under the category of buyer protection.
This includes purchase protection if an item is damaged or stolen, and needs repair or replacement. Other buyer protections are travel benefits such as when renting a car, or canceling a trip, and even interruption insurance for times when the trip has to be delayed due to bad weather.
Finally, another service is price protection, that can refund the difference in money when you find it for a lower price within a short time period.
Make your tax records easier to manage
Ever need to find all your purchases to itemize your deductions at tax time? Well, going through that shoebox of receipts is quite the drudgery. Rather, if you use a credit card, the task is simple as purchases are on the credit card account, fully organized, easy to go through, with the ability to print stuff out to be compliant with the tax authorities.
Time to pay
Another pro for a credit card is getting some time to pay for things. When you pay with cash or a check, the money is given as soon as the product or service is received.
Many credit cards offer a grace period for payment. So, after the purchase there is a time period before the bill arrives, and then after, they have to give you some time to pay the bill; this time gets referred to as float. As you have this ‘extra time’ to pay, there is opportunity to keep earning some extra interest on the money prior to payment, which is favorable for the user.
And remember, you can even make your plastic work for you harder by grabbing the best cashback credit card. Basically, get money back when you spend big.
But...do I really need a credit card?
A word of caution if you're thinking of getting a credit card in order to pay for something that, in reality, you just can't afford. If you can't pay your balance back in a timely manner then you could really see your costs spiral out of control. We would recommend steering well clear of credit cards in this kind of situation.
Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.
- Read more: TechRadar's run-down of the best credit cards you can get