Credit cards can be a useful and convenient tool to manage your finances and build credit. Credit cards can have a bad reputation and stories of overwhelming debt can encourage that misconception. Misuse of credit cards can contribute to challenges with debt, but that doesn’t mean everyone should stop using credit cards entirely… just that they should use them carefully. In fact, there are some excellent reasons to use credit cards.
- Build a credit history: In general, it’s a good idea to have at least one credit card and use it to establish a positive credit history. Your credit record will be a key factor in getting approved for a major loan, like a mortgage or auto financing. Good credit history can also help you rent a place if you’re not ready to buy.
- Protect your purchases: Sometimes, it’s better to purchase with your credit card than with cash or a check. That’s because credit cards often come with a special feature that covers you if your purchases are damaged or stolen, which is particularly useful when your new TV arrives from the store with a cracked screen. Check your card’s terms (you can read the application literature or call the customer service line). Your credit card issuer may also play intermediary if you ever have a dispute with a merchant over the delivery of the goods or services you’ve bought.
- Travel wisely: For the most part, credit cards are considered safer and more convenient to use, especially when traveling. Why worry about losing your money when your card will be accepted at most places and can be canceled if lost or stolen?
To set yourself up for positive credit card experiences, consider following these ABCs of responsible credit use:
- Avoid overusing them: If you struggle to pay off your credit card balance every month, avoid using it for everyday purchases like food, toiletries, lunch, and snacks. It can become a habit, and minor charges tend to add up quickly. Instead, use cash or your debit card for smaller daily purchases.
- Be wary of retail store cards: Though they often come with a tempting merchandise discount, they also tend to charge higher interest rates than the kinds of credit cards that you can use anywhere. The rewards may not be worth the effort of adding another card to your wallet, especially one that has limited usefulness.
- Control spending: The single most crucial component of wise credit use is controlling your spending. People’s biggest mistake with their credit cards is overusing them, which is easy to do whether you have one card or a whole wallet full of them. However, you can avoid a credit crunch by following specific guidelines you set for yourself. For example, you may decide to have only one card with a very manageable limit so that you can’t overspend. You might decide to use your card only for emergencies or things you can’t pay for in cash, like an airline ticket bought by phone, an auto rental, or an online purchase.
Credit cards have pros and cons, just like many other financial products. When used wisely, credit cards can be a great tool to manage money, build credit, and achieve your financial goals.
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