Advantages of Using a Credit Card

A credit card allows you to borrow money from your bank or another lender to make purchases, up to a certain limit. Using a credit card can have negative connotations, but if it’s used responsibly, your credit card can also yield many benefits. The best things to purchase with a credit card are items already within your budget, such as gas, groceries, or streaming subscriptions. The idea is to charge items that are planned and relatively inexpensive. Spontaneous, pricey purchases can add up quickly and lead to problematic debt.

Why use a credit card?

Using a credit card helps you establish a credit score, which is essential for securing large, future loans you might need for a home or car. You can build a good credit score by making your payments on time and maintaining a low balance. Most credit cards also provide a free option to check your credit score, so you can monitor your information and ensure that you’re setting yourself up for success.

Choosing a credit card can seem difficult at first, with so many options available. Do some research to make sure your credit card is helping you—whether that’s by offering a great interest rate, rewards that benefit your lifestyle, or simply building your credit. Some credit cards are tailored to specific goals:

• Student Credit Cards: Created for students with limited credit history, this card typically requires proof of enrollment and has a higher approval rate. 

• Business Credit Cards: Designed specifically for business use, this card makes it easy to track business charges and keep them separate from personal use.

• Rewards Credit Cards: Many cards offer a system in which you earn points for making purchases and redeem them for rewards.  

• Balance Transfer Credit Cards: This card offers a low or nonexistent interest rate for a certain period of time when you transfer your debt from another account. 

• Secured Credit Cards: If you have limited or poor credit history, secured credit allows you to borrow money after contributing a security deposit.

Benefits of using a credit card

There are plenty of perks associated with using credit cards, but some of the most common include:

• Sign-Up Perks: When you open a new credit card, it’s usually accompanied by a one-time bonus. This can be anything from money (in exchange for spending a certain amount within the first few months of the account opening) to bonus reward points.

• Reward Points: Most credit cards offer a reward program that can help you earn discounts, cash, a statement credit, gift cards, miles, and more. You’ll earn more rewards the more frequently you use your credit card.

• Security: Credit cards are more secure than other types of accounts. Some cards offer fraud alert services, so that if a security breach occurs, you’ll be notified in time to potentially stop the fraudulent activity. If your information is compromised and your card is used by someone else, you can notify your credit company to avoid being charged for purchases you did not make. If fraud occurs on a debit card, however, the money has already been spent and can be much more difficult to recover. 

• Convenience: Most credit cards are universally accepted, which means you won’t have to worry about whether you have enough cash to make a purchase. Credit cards also allow you to shop online and by phone, giving you access to more retailers and options than you have when dealing with cash or money orders. Sometimes, certain types of purchases—like hotel reservations and car rentals—require the business to place a hold on your card. Since the money on hold cannot be used for several days, it’s much easier to put this transaction on a credit card than a debit card.

Disadvantages to using a credit card

Using a credit card isn’t always advantageous, particularly if you don’t keep close tabs on your spending and have a tendency to overspend. It’s also not a good idea to use a credit card if you know you won’t be able to pay off the balance on time. You should never use credit card debt to finance your lifestyle, as this can quickly accumulate into insurmountable debt and ruin your credit.

A high interest rate and fees can also be drawbacks to your credit card. Your card’s annual percentage rate (APR) is part of your credit card agreement, and it’s the fee you’ll pay for borrowing money if your balance isn’t paid in full before the due date. APR varies by card and by person, meaning that someone with little to no credit history may have a higher rate than someone with an excellent credit score. Many cards also charge an annual fee, so be sure to read the fine print when opening a new credit account.