Responsible Use of Credit Cards
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| 10 Reasons to Use Your Credit Card |
Personal finance experts work hard to prevent us from using credit cards, and with good cause. Many of us overuse credit cards, which leads to debt. Contrary to popular belief, if you can manage your plastic properly, you're significantly better off paying with a credit card rather than a debit card and restricting cash transactions.
Using a credit card responsibly may be simple, satisfying, safer, and beneficial to your credit score.
Using a credit card responsibly may be simple, satisfying, safer, and beneficial to your credit score.
1. One-time bonuses
Nothing beats an initial bonus opportunity when applying for a new credit card. Applicants with good or outstanding credit are often approved for credit cards that provide incentives of $150 or more (sometimes much more) in exchange for spending a predetermined amount (ranging from $500 to several thousand dollars) within the first few months after establishing the account.
Other cards entice applicants with bonus reward points or miles that may be redeemed for travel, gift cards, merchandise, statement credits, or checks (details below). In contrast, a conventional debit card linked to a bank checking account sometimes offers no initial incentive or ongoing opportunity to earn rewards.
Other cards entice applicants with bonus reward points or miles that may be redeemed for travel, gift cards, merchandise, statement credits, or checks (details below). In contrast, a conventional debit card linked to a bank checking account sometimes offers no initial incentive or ongoing opportunity to earn rewards.
2. Cashback
Discover brought the cash back credit card to the United States, and the idea was simple: use the card to receive 1% of your purchases back in cash. Today, the concept has grown and matured. Some cards now offer up to 8% cash back on certain purchases, but even appealing offers are subject to quarterly or annual spending limits.
The best cash-back credit cards have cheap fees and interest rates while offering high rewards rates.
Some cards, such as the Fidelity Rewards card, provide a high 2% cash back on all transactions; however, you must deposit the proceeds directly into a Fidelity investment account.
The best cash-back credit cards have cheap fees and interest rates while offering high rewards rates.
Some cards, such as the Fidelity Rewards card, provide a high 2% cash back on all transactions; however, you must deposit the proceeds directly into a Fidelity investment account.
3. Reward points
Many reward credit cards provide additional points for certain categories of transactions, such as restaurants, groceries, and gas. Cardholders with rewards cards often get one or more points for every dollar spent. When you meet certain earnings thresholds, you may utilize the credit card company's online rewards system to redeem points for travel, retail and restaurant gift cards, or merchandise.
Your credit card rewards options are almost unlimited. Get a co-branded card from a hotel chain, an apparel store, or even a nonprofit organization like AARP, and you may leverage your everyday shopping to gain valuable advantages.
The aim is to choose the card that best matches your spending patterns. The inverse—changing your purchasing patterns to fit a certain card—can be counterproductive. However, if you already spend money with a certain shop or favor a certain hotel, why not use the card that will encourage your continued patronage by giving you points, discounts, and bonuses?
Your credit card rewards options are almost unlimited. Get a co-branded card from a hotel chain, an apparel store, or even a nonprofit organization like AARP, and you may leverage your everyday shopping to gain valuable advantages.
The aim is to choose the card that best matches your spending patterns. The inverse—changing your purchasing patterns to fit a certain card—can be counterproductive. However, if you already spend money with a certain shop or favor a certain hotel, why not use the card that will encourage your continued patronage by giving you points, discounts, and bonuses?
4. Frequent flyer miles
This advantage preceded practically all of the others. In the early 1980s, American Airlines teamed up with credit card giant Citibank to offer consumers a novel way to earn frequent-flyer points even when they weren't flying.
Now, all domestic and foreign airlines provide at least one credit card under a similar deal with major credit card issuers.
Cardholders normally earn one mile for every dollar in net purchases, or one mile for every two dollars spent on lower-end cards with no annual fee. The amount of this incentive changes according to the airline ticket booked using your points or miles. Many frequent flyer cards' launch incentives are mileage-based, which dramatically increases their worth. These are often enough to get you 50-100% of the way to an award flight after meeting the card's initial spending limit.
Now, all domestic and foreign airlines provide at least one credit card under a similar deal with major credit card issuers.
Cardholders normally earn one mile for every dollar in net purchases, or one mile for every two dollars spent on lower-end cards with no annual fee. The amount of this incentive changes according to the airline ticket booked using your points or miles. Many frequent flyer cards' launch incentives are mileage-based, which dramatically increases their worth. These are often enough to get you 50-100% of the way to an award flight after meeting the card's initial spending limit.
5. Safety
Credit card payments make it easier to reduce fraudulent losses. When a criminal uses your debit card, the money is deducted promptly from your account. Legitimate expenses for which you have scheduled online payments or mailed checks may bounce, resulting in insufficient funds penalties and hurting your credit score. Late or missed payments may harm your credit score, even if they are not your fault.
It may take some time to reverse fraudulent transactions and return money to your account while the bank investigates.
When your credit card is used illegally, you do not lose money; instead, you notify your credit card company of the fraud and refuse to pay for transactions you did not make while the firm investigates.
Credit card networks like Visa and Mastercard provide 0% liability coverage for illicit transactions to encourage consumers to use their cards instead of cash or checks.
It may take some time to reverse fraudulent transactions and return money to your account while the bank investigates.
When your credit card is used illegally, you do not lose money; instead, you notify your credit card company of the fraud and refuse to pay for transactions you did not make while the firm investigates.
Credit card networks like Visa and Mastercard provide 0% liability coverage for illicit transactions to encourage consumers to use their cards instead of cash or checks.
6. Keeping vendors honest
Assume you hire a tile installer to lay flooring in your entryway. Workers spend the weekend cutting, measuring, grouting, placing spacers and tiles, and allowing everything to set. They then charge you $4,000 for their labor.
You access your savings account and write a check. But what happens when, 72 hours later, the tile starts to slide and the grout hasn't set? Your entrance is now a complete mess, and that vein in your forehead won't stop throbbing.
You may submit a complaint with your state licensing board, but the process might take months, and the contractor will still keep your money. That is why, if feasible, you should utilize a credit card to make a significant purchase like this. The issuer is incentivized to prevent fraud among its suppliers, and if a problem does develop, they have a procedure in place to handle it. If you dispute the charge, the card issuer may withhold the money from the tile setter. You might get a refund and aid in choosing a new contractor.
You access your savings account and write a check. But what happens when, 72 hours later, the tile starts to slide and the grout hasn't set? Your entrance is now a complete mess, and that vein in your forehead won't stop throbbing.
You may submit a complaint with your state licensing board, but the process might take months, and the contractor will still keep your money. That is why, if feasible, you should utilize a credit card to make a significant purchase like this. The issuer is incentivized to prevent fraud among its suppliers, and if a problem does develop, they have a procedure in place to handle it. If you dispute the charge, the card issuer may withhold the money from the tile setter. You might get a refund and aid in choosing a new contractor.
7. Grace period
When you make a debit card purchase, your money is debited immediately. When you make a credit card purchase, the money is held in your checking account until you complete the credit card payment.
Holding onto your possessions for a lengthy period of time may benefit you in two ways. First, understanding the time worth of money, no matter how little, will save you money. Delaying final payment makes your purchase somewhat cheaper than it would be otherwise. Aside from that, using a credit card rather than a debit card, cash, or check keeps your money in your bank account for longer. If you pay your credit card using an interest-bearing checking account, you will earn money throughout the grace period. The added revenue will quickly add up to a large number.
Holding onto your possessions for a lengthy period of time may benefit you in two ways. First, understanding the time worth of money, no matter how little, will save you money. Delaying final payment makes your purchase somewhat cheaper than it would be otherwise. Aside from that, using a credit card rather than a debit card, cash, or check keeps your money in your bank account for longer. If you pay your credit card using an interest-bearing checking account, you will earn money throughout the grace period. The added revenue will quickly add up to a large number.
Second, if you use your credit card on a regular basis, you won't need to keep track of your bank account balance.
8. Insurance
Most credit cards automatically contain consumer protections that most people are unaware of, such as rental vehicle insurance (which is usually secondary to your own auto insurance), travel insurance, and product warranties that may extend the manufacturer's warranty.
9. Universal acceptance
Certain transactions are difficult to do using a debit card. When renting a car or staying in a hotel, having a credit card will almost certainly make the procedure easier. Rental car companies and hotels prefer credit card payments because they make charging customers for any damage they do to a room or automobile easier. Another difficulty is that unless you have pre-paid for your rental or hotel stay, the merchant does not have a complete picture of your transaction. As a consequence, the shop must reserve a percentage of your available credit line to cover unforeseen expenses.
So, if you want to pay for one of these items using a debit card, the company may insist on keeping several hundred dollars from your account.
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Furthermore, when traveling in a foreign country, stores may not always accept your debit card, even if it has a prominent bank logo.
When not to use a credit card: Purchasing using a credit card is not always better than paying with cash. Retailers accept credit cards because they want to make it easier for you to shop there. However, the major credit card companies compel shops to pay a transaction fee with each sale. Because a cash transaction is more lucrative for the store than an equal credit sale, many businesses provide discounts in return for the option to take your cash immediately. A big object, such as a furniture set, may have a substantial difference. However, you will renounce the consumer protections afforded by credit cards.
There are further reasons why paying using credit is not preferred, and they relate to your spending habits. Credit cards may not be appropriate for you if:
You are unable to make full and timely payments on your credit card balance. If this occurs often, stick to a debit card (or cash) to avoid incurring credit card debt and paying interest fees.
You often spend more than you can afford. Paying using debit restricts you to spending money you've already earned.
You can only get a credit card with a restricted credit limit, and it's tough to stay below the balance: exceeding your credit limit results in substantial fees and may ruin your credit score.
So, if you want to pay for one of these items using a debit card, the company may insist on keeping several hundred dollars from your account.
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Furthermore, when traveling in a foreign country, stores may not always accept your debit card, even if it has a prominent bank logo.
10. Building credit
If you don't have credit or wish to improve your credit score, using a credit card responsibly may help since credit card issuers report your payment activity to credit bureaus. However, since debit card use is not recorded on your credit report, it cannot help you build or improve your credit score. Even if you have to deposit money to receive a secured credit card, this may help you build your credit history and eventually qualify for unsecured cards or larger loans.When not to use a credit card: Purchasing using a credit card is not always better than paying with cash. Retailers accept credit cards because they want to make it easier for you to shop there. However, the major credit card companies compel shops to pay a transaction fee with each sale. Because a cash transaction is more lucrative for the store than an equal credit sale, many businesses provide discounts in return for the option to take your cash immediately. A big object, such as a furniture set, may have a substantial difference. However, you will renounce the consumer protections afforded by credit cards.
There are further reasons why paying using credit is not preferred, and they relate to your spending habits. Credit cards may not be appropriate for you if:
You are unable to make full and timely payments on your credit card balance. If this occurs often, stick to a debit card (or cash) to avoid incurring credit card debt and paying interest fees.
You often spend more than you can afford. Paying using debit restricts you to spending money you've already earned.
You can only get a credit card with a restricted credit limit, and it's tough to stay below the balance: exceeding your credit limit results in substantial fees and may ruin your credit score.