Five Fast Facts About Why Credit Cards Are Beneficial
Credit cards offer you protections that cash, debit cards and checking accounts don’t
One of these is fraud protection. If your purse or wallet is stolen, there is a good chance that you are not getting the cash in it back. Any unauthorized charge against your debit card removes the money from your account immediately. Worse yet, it can take a while (sometimes 30 days or more) for those fraudulent transactions to be reversed and the money put back into your account. In the meantime, any legitimate payments you have scheduled may bounce, resulting in insufficient funds fees and unhappy creditors – not to mention those late payments could affect your credit score.
If an unauthorized charge is made to your credit card however, most credit card companies offer zero liability fraud protection, with the card provider covering any losses on the card. You simply have to notify the credit card company of the fraudulent charge and you will not be held accountable for them. Plus it is much easier to freeze or cancel a lost or stolen credit card than it is to put a stop payment on checks or cancel bank accounts. Credit cards also have other guards in place that debit cards do not, such as damage protection on purchases.
Credit cards build your credit
It’s a fact of life – the world revolves on credit. Credit is needed these days for everything, from renting an apartment to establishing cell phone service and sometimes even landing that dream job. Your credit score is a way for potential creditors to determine your trustworthiness with credit and ability to pay your debts, so keeping that number high is in your best interest. Credit cards help establish credit history for those who do not have it; and they can help improve credit history for those who do. Your credit score is determined by a number of factors such as open credit card utilization and percentage of on-time payments. By regularly using one or more credit cards and consistently paying them off in full, you will improve your credit score.
One thing you should remember though is to stay well within your credit limit. If you constantly use all of your available credit and it looks like you are close to maxing out your credit lines you can be considered a credit risk. The more available (unused) credit you have, the better your score. Bottom line, responsible credit card users will find that lenders are more willing to offer additional credit when the need arises, such as increased credit lines, consumer loans, and even mortgages.
Credit is there when you unexpectedly need it
Life is unpredictable. Emergencies are one of the most important reasons why having a credit card is a good idea. Ideally you should have at least six months of savings for any type of true emergencies you may encounter like losing a job, a car breaking down, or a dental or medical emergency. However, if you have a less than ideal emergency fund, a credit card can help when you do not have the cash you need immediately – and chances are you are better off using a credit card than you are getting a cash advance, especially if it will take you time to pay it off.
Credit cards can keep you on the budget track
Credit cards keep track of your purchase activity. Using a credit card for your purchases will give you real-time accounting of how you spend your money. This comes in handy when you want to track your spending for budget purposes or when something goes wrong such as your credit card number being stolen. Moreover, many credit card companies offer nifty budgeting tools and will often categorize your purchases on your monthly statement. Tracking your spending with cash, on the other hand, is a nightmare. Cash is easy to spend without keeping account of it and there is very little in the way of documentation to keep you on track.
Credit cards reward you for using them
Credit cards offer you something that most debit cards do not – rewards. One reward you can often find with a credit card is a signup bonus ranging anywhere from $50 to $250 simply for opening an account with the credit card issuer. These days, credit card companies reward you in many different ways, such as airline miles, points toward future purchases, or even cash back. With these rewards the system is pretty much the same: you spend a predetermined amount of money and you are given credit in the form of one of these rewards. If you choose the cash back feature, you can earn anywhere from one to five percent back on your purchases. Before choosing a card with a reward program, you will want to compare your options to see which one is the best fit for you. If you are planning to spend money anyway, you might as well be rewarded for it.
This article was written by Steven Moore, who has been covering consumer finance and the credit card markets since 2006. You can learn more and connect at his Google+ page.