3 Times Using a Credit Card Could Pay Off Big Time

Credit cards are a financial tool that many people worry about using. That makes sense to a degree. Credit cards have high interest rates and low minimum payments, so there's a risk you'll get trapped with expensive debt that takes years to repay.

But if you use credit cards responsibly, choosing this payment method could benefit you. Here are three examples of when using a credit card could be a great move.

1. If you take advantage of the card's extended warranty

Many cards offer an extended manufacturer warranty, including several Chase cards that give you an extra year on top of the manufacturer guarantee if the manufacturer warranty was for three years or less.

Let's say you buy an expensive refrigerator with a two-year warranty and it breaks in year three (which always seems to happen, at least in my house). If you take advantage of your card's extended warranty protections to pay for repairs or a replacement, you could save hundreds or even thousands of dollars depending on what part went kaput and the repair cost.

2. If you pay your credit card bill on time and build credit

Two of the most important factors in the credit scoring formula are payment history and credit utilization (amount of credit used relative to credit available). Getting a credit card, paying it off each month, and not charging more than 30% of your available balance can help you improve your credit score.

A good credit score can make a huge difference in many important aspects of your financial life. Let's say you get a $300,000 mortgage to buy a house. If your credit score was excellent (in the 760 to 850 range) due to responsible credit use, your rate would average 6.86% as of Nov. 28, 2023, and your monthly payment would be $1,968. But if your credit was in the 640 to 659 range, your rate would average 7.90% and you'd be looking at paying $2,181 per month.

The boost to your credit score from responsible credit card use (paying your card on time and not charging too much) could have a huge impact if you decide to buy a home -- or take out other loans like a car loan or personal loan.

3. If you earn enough rewards to get free stuff

Finally, using a credit card could pay off for you if you're able to earn enough rewards to get free stuff. Say, for example, you use a cash back credit card that provides 2% cash back on all purchases. If you charge $5,000 on your card during the year, you'd get $100 back, which is enough for a nice meal out.

And the more you use your card, the more rewards you could potentially earn -- especially if you pick the right card that is a good match for your spending. Last year, for example, I used my American Airlines branded credit card enough to earn a free trip for my entire family. That was three airline tickets I didn't have to pay for.

It's crucial to pay off your card in full each month so you don't end up paying a lot of interest. But as long as you do that and pay your card on time, your card use could have huge benefits that make getting a credit card well worth it.