4 Reasons to Be Thankful for Credit Cards
That little piece of plastic benefits you in ways you probably don't think about often.
Credit cards get a bad rap at times because they're the source of costly debt for millions of Americans. Some people go as far as to avoid credit cards altogether rather than risk running up a balance they can't pay back. This is a legitimate concern, but credit cards also have many advantages that we often overlook. Here are a few reasons you should keep at least one or two in your wallet.
1. They help you shop online safely
The internet is full of hackers who make it their mission to steal your financial information. Using a debit card isn't the safest option because its level of fraud protection is limited.
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If you report your debit card number stolen before a thief makes any fraudulent purchases, you won't be held liable for any charges. But most people only realize their card has been stolen when they see the fraudulent charges and then the clock is ticking.
If you contact your debit card issuer within two days of the fraudulent transaction, you could be held liable for up to $50 in fraudulent charges. If you report it between three and 60 days afterwards, you could be liable for up to $500, and if you report it later than this, you have no protection. Not to mention the headache that could arise if you can't pay your bills because a hacker drained your bank account.
The most a credit card company will ever charge you for fraudulent purchases made on your account is $50 and many won't charge you anything. If you notice purchases you didn't make on your bill, all you have to do is contact your card issuer and they'll take the charges off, cancel your card, and send you a new one. It's still a bit of a hassle, but far less costly for you.
2. They help you establish a credit history
Credit cards are often one of the first entries on most people's credit reports. Responsible usage will increase your credit score over time, opening up access to better credit cards and lower interest rates on loans that can help save you money on large purchases. Of course, credit cards can just as easily damage your credit score if used improperly.
Always make your payments on time and try not to spend more than 30% of your credit limit each month. Spending more than this worries creditors because it appears as if you need a lot of credit to afford your lifestyle. If you can't reduce the amount you're charging to the card each month, try paying twice -- once partway through the month and once again at the end. The credit bureaus only see the amount reported at the end of the month, and so this strategy allows you to spend more without hurting your credit score.
Make paying off any credit card debt you have a priority. Use a balance transfer card with a 0% introductory APR to temporarily halt the growth of your debt, or take out a personal loan to get yourself a predictable monthly payment. Put the bulk of your extra cash each month toward debt repayment until it's gone.
3. They offer rewards
Not all credit cards offer rewards, but many do. Rewards can be cash back, statement credits, gift cards, free flights or hotel stays, or discounts on other travel expenses. Assuming you don't carry a balance from month to month, these rewards actually make credit cards a more affordable way to shop. That's because you'll get some of that money back at a later date, sort of like a rebate.
Choose a rewards credit card that both aligns with your spending habits and offers rewards you'll actually use. A travel card may not make much sense if you hardly ever go anywhere. But it could be perfect for someone who often travels for work. Note any bonus categories and caps on bonus rewards, and check whether your points or miles have an expiration date. Make sure to use them before then. If your card offers a sign-up bonus, do what you must to get it -- unless spending that much would push you into credit card debt.
4. They offer protections on your purchases
Rewards get all the attention, but some credit cards also offer protections on your purchases that could save you quite a bit of money. Purchase protection may be less flashy, but it's still valuable as it will refund you the cost of your item if it's damaged or stolen. And if you find an item you bought on sale at a lower price, price protection will refund you the difference between what you paid and the current price. Return protection will refund the cost of an item even if the manufacturer refuses to take it back. You usually need to have purchased the item with that credit card within the past few months and have the receipts to prove it.
Some travel rewards cards offer travel or rental car insurance, so you don't need to purchase separate policies. Read your cardholder agreement to see what kinds of protections and insurance your credit card offers and any limitations that may come with them.
Credit cards can be a good or bad thing depending on how you use them. But if you're careful not to carry a balance, there really aren't any cons. You can just sit back and enjoy the benefits.
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