Having a credit card is often portrayed to be a negative thing, however, there are some positive reasons why one should have a credit card. In this article, we will highlight the top 5 reasons why having a credit card is a good idea.
Improve Credit Rating
Having a good credit rating is vital if you want to acquire a mortgage, a post-paid mobile phone, or a car on credit. Owning and using a credit card responsibly can drastically improve your credit rating. Credit reference agencies monitor how you utilize credit facilities therefore if you use your credit card wisely, you could significantly boost your credit score.
Why is Credit Score Important?
According to one of the top credit card providers American Express, credit scores are vital because they provide lenders with a quick and transparent measurement of your credit risk. This speeds up and facilitates credit applications allowing applicants to receive answers to their credit applications quickly and efficiently. Credit scores also allow lenders to take an objective look at an applicant’s credit history to make a fair and informed decision on whether or not the applicant is eligible to receive credit.
A low credit score could prevent you from acquiring a credit card however, if your credit score is average, you might be able to acquire a credit card and use it as a tool to build your credit rating.
One of the most significant reasons for having a credit card is the safety aspect. Why is it safe to pay with a credit card? When you pay for a high ticket service or item using a credit card and the vendor fails to deliver the goods, the consumer is often refunded for the purchase. Once it has been established that the consumer is not at fault, the credit card company will refund the money spent.
If your card or card information is stolen and used for unauthorized purchases, you will not be held responsible for the purchases made. Therefore, in some sense, it is safer to use a credit card than a debit card, because credit card lenders often offer better protection against fraud.
How do Credit Card Lenders Protect Against Fraud? US law states that if a credit card holder reports fraudulent activity on their card, the credit card company must investigate the purchases. If fraud is established, the cardholder should only be liable for a maximum of $50. Often the card is refunded with no liability at all.
Rewards and Bonuses
Some credit card lenders offer significant bonuses for cardholders that spend a certain amount within the first few months. Some card lenders even offer monthly bonuses for timely and responsible payments.
Reward points can also be an incentive for having a credit card. Reward credit cards usually give bonus points when cardholders use their credit cards in certain restaurants, stores, or gas stations. Reward points can often be exchanged for gift cards, flight bookings, hotel stays, and to purchase items.
The Chase Sapphire Credit Card, for example, allows credit cardholders to transfer their reward points to popular retailers, hotel chains and airlines. The United Explorer Card is designed specifically for frequent travelers.
As you spend, you collect points that can eventually be exchanged for air miles. One of the best reward cards on the market is the American Express Blue Cash Preferred Card. This card offers 6 % cashback when you spend at selected supermarkets in the United States up to $6,000 in a single year. You can also earn cashback from online subscription services, gas stations, and taxi rides.
Access to Cash in an Emergency
Having access to cash in an emergency is vital, more than 80% of Americans do not have access to an emergency fund. Leaving them financially vulnerable in the case of a serious emergency. Having a credit card should not be your source of emergency funding however, it can provide you with an extra financial cushion in desperate times. Here are just a few reasons why you should have some accesses to cash in an emergency:
- Unexpected job loss – Job loss is one of the most prominent reasons why having an emergency fund is necessary. Yes, losing your job will certainly make monthly credit card payments difficult however, having a credit card could help you through a short period of unemployment if you use it wisely.
- Major Health Expense– Health insurance certainly does not cover every health expense. Often seemingly healthy individuals have health insurance policies that do not cover every health expense. Therefore, it is vital to have some kind of financial backup plan if you need to access funds for an emergency healthcare situation.
- Emergency Dental Care – Just like emergency healthcare, your dental expenses can put a significant hole in your pocket. Therefore, having a credit card to help with emergencies like this could provide you with some peace of mind that you do have access to funds in the unfortunate event of an emergency.
- Unexpected travel – As a result of a bereavement in the family or any other emergency requires funds. Flight tickets, spending money and accommodation, these things cost money. Having a credit card could provide that extra financial cushion when you need it most.
Bonus Reasons Why Having a Credit Card is a Good Idea
Here are a few bonus reasons why having a credit card is a good idea:
Cashback is similar to reward points however, you get actual cashback when you spend using your credit card in certain stores. As mentioned above, the American Express Blue Cash Preferred card offers significant cashback when you use a credit card to make certain purchases. Debit cards do not offer cashback rewards which makes credit card spending more profitable in the long run.
For example, the Discover Cashback card offers 5% cashback rewards on purchases at a variety of places such as Amazon, certain grocery stores and gas stations. You earn 1% unlimited cashback on other purchases automatically.
The Blue Cash Everyday Card from American Express offers 3% cashback on purchases from certain grocery stores, 2% cashback on purchases from gas stations and some department stores in the United States and 1% cashback on other purchases.
There are certain situations where a credit card is needed. For example, when you are renting a car, often rental companies only accept credit cards to guarantee the booking. Some hotels prefer credit cards for reservations because often they need to designate a certain amount of money for unexpected expenses.
Using a debit card would leave you out of pocket until you return the car or check out from the hotel. Also, using a credit card abroad is much more convenient than using a debit card. Some foreign ATMs or point of sale systems do not accept foreign cards. Therefore, to save you the embarrassment of having your card declined, it is a good idea to have a credit card on hand in these situations.
Track Your Spending
Credit cards track your spending effectively, most credit card statements provide you with an in-built spending tracker. Making it easier to budget your money and to provide accurate spending accounts when tax time arrives.
Most cards offer debt consolidation, allowing you to transfer debt to your credit card. For example, car payments and other credit payments can be transferred to your card, facilitating monthly payments and making it easier to pay off debt. One of the most effective balance transfer cards on the market is the Chase Freedom card, it offers the cardholder, 0% introductory APR on purchases for 15 months.
Purchase protection provides significant advantages for credit cardholders. For example, if you purchase an item such as a washing machine or fridge with a credit card and later find out that the item is faulty, you can return the product and get a refund from your credit card company. Some credit cards also offer consumers extended warranties on certain purchases such as electrical items or furniture.
Some cards offer extra insurance protection such as health insurance, car insurance, and home insurance. It is worthwhile taking advantage of these options even if you already have insurance for these.
Having a credit card might be a good idea if you want to boost your credit rating, improve your financial footprint and if you want to take advantage of payment protection, rewards and bonus points, extra insurance and low interest rates or 0% interest for certain cards over a specific time. Having a credit card can enhance your financial health and provide you with more credit opportunities in the long run.