When it comes to personal finance, credit cards tend to have a bad reputation. If you were to conduct research, you’d find money blogs and financial experts advise consumers to steer clear of using plastic. In all fairness, this advice is based on the experiences of individuals who misused their credit cards and consequently suffered financially. However, the truth is that when used correctly, credit cards have several advantages. Continue reading to learn more.
Establishes Credit History
Credit is essential for purchasing products and services. It is a summary of your financial accounts, assets, and money management practices. Whether you’re trying to apply for car insurance or a home loan, your credit history is a determining factor in whether you get approved and how much assistance you can receive. As you might imagine, a person without a credit history doesn’t give creditors, lenders, and service providers much to use.
Credit cards are one of the first types of financial products you can use to establish a credit history. Many credit card companies have fewer guidelines than banks allowing applicants with no credit history to apply easily. From the moment you get approved, the account is added to your credit report. Creditors then maintain a record of your payments by reporting to the three major credit bureaus every month.
It’s not enough to have a credit card on your credit report. If you’re going to get approved for loans and save money on other products and services, you need a favorable credit rating. While several factors determine your rating, making timely payments is at the top of the list. When you use money management practices and tools that help you pay your Sears credit card or your Capital One Mastercard on or before the due date, this is reported to credit agencies, reflecting positively on your behalf.
Credit card companies go to great lengths to attract new audiences to their products. Such marketing tactics often include offering rewards programs in addition to a line of credit. Depending on the type of credit card you apply for, you could receive percentages off your purchases, cashback, points towards future purchases, and frequent flyer miles. Some credit cards even offer travel, product, and payment protection insurance.
Covers Financial Emergencies
While having an emergency savings account is recommended for financial protection, your credit cards can be another nest egg. Should an unexpected expense arise that you don’t have enough money to cover, you can charge it to your card and repay the balance in installments. Using credit cards to cover financial emergencies ensures you can handle the situation instantly to avoid further consequences.
Financial theft and fraud happen all the time. Criminals gain access to valuables and use them to fund their own interests. Victims are left to pick up the pieces. While the odds of retrieving a wallet full of cash are improbable, credit cards are a lot easier. Once you contact your creditor and report a stolen card or suspicious activity, they will provide protection, including closing the card, issuing a new card, and covering the costs of any purchases you didn’t advise.
For those who love to travel internationally, credit cards are your best friend. It’s a lot easier than trying to acquire local currency. Since most credit cards are accepted everywhere, you won’t have an issue paying for anything from your airline tickets to souvenirs.
If you held off on applying for a credit card because of all the bad press they get, it’s time to reconsider your decision. Of course, credit cards can cause issues if you take on more than you can afford, max them out, miss monthly payments, and allow fees, penalties, and interest to accrue. However, if you use them to make wise purchases, keep the balances under 35%, and make timely payments, the skies are the limit. If the above financial advantages have persuaded you to want a credit card, ensure that you do your due diligence to select a card that is most convenient for you.