A credit card can be convenient or a slippery slope depending on the person using it. While they provide access to additional funds, it can be easy to overspend on a credit card or wrack up interest from carrying a balance. With responsible use, the pros will often outweigh the cons.
- Establishes Credit and Improves Credit Score
Having a good credit score is the cornerstone of personal finance. Generally, the factors that positively influence a person’s credit score include having multiple credit lines in good standing, different types of credit accounts, and a history of making payments on time. Length of credit history also plays a role in a person’s credit history. For example, if a person starts with no prior credit history, applying for a credit card can be a great start.
- Convenience
A credit card makes it possible to make significant, important purchases, like roundtrip airline tickets or furniture for a new home, and pay later. They are accepted by most businesses online, offline, and worldwide. In essence, credit is the actual universal currency. They are also easier to carry discreetly, which is safer than carrying large amounts of cash. In addition, many credit cards offer fraud and theft protection, so fraudulent purchases on a credit card are usually reversed without much hassle compared to debit cards.
- Rewards
These days, most major credit cards offer some incentive to attract customers. For example, signing up for the first time can even net extra benefits depending on the card, such as extra airline miles or a cash back bonus for first-time users. Travel points, cashback, discounts, and VIP service at hotels and airports are just some of the rewards available. For example, the experts at Sofi Invest offer credit card perks such as 2% cashback, lower APR with good payment history, and “the first credit card that lets you cash in on crypto.”
- Travel Insurance and Purchase Protection
Another massive difference between credit and debit cards is purchase protection, or the ability to file a claim on a big purchase if it becomes damaged, lost, or stolen. Some purchases may even qualify for extended warranties through the credit card used in the transaction. In addition, credit cards may also offer travel insurance for expenses like rental cars, lost baggage, hotel rooms, and more. Canceled flights and other changes can be easily covered if purchased on credit cards. This type of benefit usually doesn’t exist with a primary debit card.
How to Use Responsibly
While all the perks make credit cards seem worth it, overusing one can quickly negate its benefits. Carrying a balance every month without paying it up can accrue interest debt, which easily outweighs the impact of any potential rewards. The best way to use a credit card is to save it for emergencies and large purchases, pay off the balance every month and start slow until good habits are established.
