7 great reasons for having a credit card
By Erica Sandberg
January 13, 2015
If I make a ton of money and buy everything with cash, including houses, do I need credit cards? I've started my business with my own two hands, and I don't want to depend on anyone, including banks. –Josh
The short answer is no, credit cards are not a necessity like air, water and shelter. Totally optional, they can either make life easier or more difficult, depending on how you use them. I don't know if they're right for you, but I can give you the information you need to decide for yourself. Here are seven reasons to have a card.
1. Borrow now, pay later. Every credit card comes with a credit line, a fixed amount of money the issuer will lend to you for about 30 days. As a cardholder, you can charge up to that limit without dipping into the cash in your saving or checking account. At the end of the cycle you'll get a bill, with the total balance and the minimum expected payment. Clearly, there is some convenience to this system. Maybe you want something costing $500 right now, but your paycheck won't arrive until next week. With the card, you can get what you want without having to wait.
2. Installment payments. Another nice aspect of credit cards is that you get to break up the cost into affordable chunks. Let's say you made that $500 charge, but could only spare about $250 for each payment. Even if the interest rate was high — say, 21 percent — the finance fees would only be about $14. As a short-term loan, that's not a bad deal.
3. Build a credit history. Soon after the issuer approves you for a card, it will send your activity with it to the three major credit reporting agencies, Equifax, Experian and TransUnion. Your balance, payment history, credit limit and other details will be listed. If you pay on time and in full, you're proving that you can manage credit and money. Someday you may want to grow your business and need a loan to do so. A great credit rating will be instrumental in approval and borrowing money at a favorable rate.
4. Useful in a crisis. It's true that “emergency cards” can create a false sense of security. Instead of finding other ways to cope with a financial dilemma, too often people charge their way out. The resulting debt then becomes an additional problem. However, when used prudently, a credit card is good to have in case you can't access funds in a real crisis. It would save you from having to ask a friend or family member for help.
5. Great for travel. Sure, you can use your debit card to pay for hotels and car rentals, but those companies may place a hold on the total estimated amount, thus tying up your cash flow when you most want it. That alone makes credit cards superior for travel. When you get home, just pay for everything you charged.
6. Consumer protection. Imagine you bought something expensive, but it doesn't work. Or it never arrives in the mail. After taking it up with the merchant, you get nowhere. If you paid with a credit card, you can dispute it, and possibly be credited for the amount you spent. The issuer may even step in and act as a go-between for you and the seller, and come up with a solution you can both live with. It's a feature not available with cash or debit.
7. Rewards points. If you get a credit card that allows you to rack up points transferable for cash-back, products or services, you can come out ahead. All you would need to do is charge and never keep a balance. It's a guaranteed way to earn from the account.
The problem is, all of these benefits evaporate when plastic is mishandled. Run the card up, don't pay when you should and trouble ensues. Will they suit your lifestyle or personality? That's up to you to decide.
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