Credit Cards are an excellent financial tool. I have written about the pros and cons of cash in the past, but I’m always so shocked when I hear any advice on completely avoiding credit.
Why would you avoid a free short term loan, with a ton of added benefits?
My assumption, of course, is that you pay off your credit card balance every month. If you fail to pay to do so, credit cards are a nightmare. But if you use them responsibly, you should own at least one. Here are 10 reasons why:
1. Improve Your Credit Score
Every time you charge something on a credit card, and pay it off on time, you are building your credit score. The longer this process carries on, the higher your score will go. You probably know this already.
What you might not have known is how important your credit score might be. All sorts of industries now pull credit scores and make decisions based on the numbers. Did you know that nearly all types of insurance providers now check credit score? And for good reason, credit score is a reliable predictor of future claims.
Using a credit card to build your credit score will ensure you get the lowest mortgage rates available, the lowest insurance premiums, and a host of other benefits.
Travel rewards and cash back rewards are another huge reason to own a credit card. Companies frequently kick back the equivalent of 5-10% to the consumer just for swiping their plastic.
Why would you pass that up? Most places don’t give a cash discount anymore, so credit cards now fill that role.
3. Internet Purchases
You can’t use cash to buy something online, and numerous discount stores now operate solely through the internet. Even if you can buy it at the store, you’ll pay extra in gas and time.
You could use debit, but that offers no perks whatsoever.
4. History of Purchases
Credit card companies are required to provide you periodic statements that detail your spending. This means you get a free record keeper/expense tracker. You can see when and where you charged something, and for what amount.
For individuals who don’t keep solid records, like me, this is a life saver.
5. Emergency Money
Credit cards are a free short term loan. When treated as such, they become an excellent backup emergency fund. If an unexpected expense comes up, one of two things could take place:
- You aren’t carrying enough cash to cover an unforeseen event. For example, maybe you’re out of town and need a service, but aren’t near your bank to withdraw money.
- You don’t have enough money available to cover an unforeseen event. For example, your car breaks down and your checking account can’t cover the expense until you’re paid next week, leaving you helpless without a free short term loan from the credit card company.
6. Interest-Free Money
As I mentioned above, the line of credit available with your credit card is interest free. Between the time you make a purchase with your credit card and the time you make payments, you are actually able to make money. If you were to hold money in an interest bearing account, the credit card company is actually making you money with their short term loan. Interesting to think about?
7. Purchase Protection
If you make a purchase, but the seller tries to scam you or provides false information, the credit card company will fight the battle for you. Usually you can just file a claim and they will fight on your behalf. If you were to pay with cash, good luck trying to win that battle. It would take far more time, money and energy than the product was probably worth.
8. Warranty Protection
Many credit card companies offer free warranty extension. So if you buy an electronic with a one year warranty, they’ll double it and offer another year. If the item breaks within that time frame, you call and file a claim, and they fix or replace the item.
There are other protections as well. Rental car damage waiver is another good example.
9. Loss or Theft
What happens if you are robbed while holding $500 cash? Well, you lose the money.
What happens if you are robbed with your credit card? You call and cancel, losing nothing.
The same holds true if you misplace or lose these items. Cash is gone, credit is easily replaced.
It’s just easier to carry around a little plastic card than a wallet full of $20 bills. This especially holds true during travel. No matter where you are, a credit cards simplifies the experience. If you leave the United States, many of these same advantages travel with you. No more worries about exchanging currencies either. Many credit card companies will provide the exchange for you.
In closing, credit cards are a wonderful financial tool for those who are disciplined enough to pay the balance in full each month.
Our primary card is currently the Discover it® – with cashback match. If you’re interested in up to 10% cash back, read the review.
What are your reasons to get a credit card?