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Why You Need a Credit Card

In my opinion, everyone needs a credit card. I know many people have great arguments about why people don’t need credit cards, but I won’t agree with most of them. The key is using your credit card properly, which means only borrowing amounts you can afford to pay off right away. If you follow that method, you will never get into trouble by using your credit cards.

Here are some reasons you need a credit card:

Improve your credit history and credit score. Everyone needs to have some credit history and preferably a high credit score. Credit history and a good credit score is necessary to borrow money at good rates, and can help you rent a house or apartment, get better insurance rates, buy a cell phone, or even get a job. Having a credit card, charging small amounts, and paying it on time every month can help you establish your credit history and get a high credit score.

Consumer protection. If your credit card information is stolen and you promptly report it, you will only be on the hook for the first $50 of the damages – even if thousands of dollars are stolen. Some credit card companies will even waive the $50. This makes it much safer and more convenient than carrying around large amounts of cash.

Internet purchases. Everybody knows the best deals are on-line. From airline tickets, to Amazon, to Ebay, the best deals are on-line. Credit cards are the easiest and most secure method of on-line payment. Sure, you can use a debit card or an on-line payment service similar to PayPal for on-line payments to most places, but these methods do not come with the same protective measures as credit cards. If fraud is suspected, PayPal or your bank will likely tie up the disputed amount of money until the situation is resolved. This can put a serious damper on your cash flow situation!

Rental cars. Many rental companies require a credit card to rent a car. This is so they can charge any outstanding amounts to you in the event of over mileage or damage. Some companies will accept debit cards, but will likely withdraw a large deposit – often around $500 or more – until you return the vehicle and they have inspected it. It may take up to a week after you return the car for you to receive your refund. This can be devastating if you need that money for something else!

Detailed transaction history. If you budget your money (you do, right?), then using credit cards will allow you to download your transaction information in neat categories. How much did you spend on eating out? Gas? Groceries? It is very easy to find out. Just download your information and track it. Then you can make your budget accordingly, or find out where you need to cut back!

Other benefits. Credit cards can provide protection against merchant disputes, increased manufacturer warranties, cash back rewards, reward points, miles, and easy currency conversion.

Use credit cards wisely. Credit cards are a wonderful tool. As long as you treat them with respect and only charge amounts that you can afford to pay off straight away, you will never get into trouble – and you can enjoy all the benefits credit cards have to offer.

Patrick is the author of Cash Money Life, a blog about personal finance, career management, and self-improvement. He served in the United States Air Force, has traveled to over 35 countries, and is a fantasy baseball champion. He is an active lender at Prosper.


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4 Responses


Andrew Martinez-Fonts | March 19th, 2008 at 4:27 pm

The way I see it, there are two sides to credit cards – the good side, and the bad side.

The good side (as outlined above) is where you take advantage of your credit card company’s 30 days of free credit and then dutifully pay off your balance every month. They’ll even throw in airline miles and cash back. You’re taking advantage of them.

The bad side is where you borrow the credit card company’s money for longer than the 30 days of free credit, and pay an extravagant (and compounding) interest rate for the privilege. They’re taking advantage of you.

Most people spend most of their time on one of these sides, and switch over as needed or possible. The good side is just as good as the bad side is bad. So I spend my time on the good side, getting miles, managing my cash flow, and building my credit score. Spending enough to put myself on the bad side is so depressing to even think about that I avoid it at all costs. Great post.


kw1954 | March 20th, 2008 at 1:30 am

Now that’s the truth in lending! I have victimized myself over the years with these very weak principles (the bad side that Andrew Martinez-Fonts alluded to). I am actually ascending in my credit score and downsizing liablilities, even at this typing because I too found a way to keep certain bills down or out and stopped action on my credit cards cold!
Only charge what can be paid in a 30 day or less period. A hard lesson I learned. Thanks for the update to others!


Dana | March 25th, 2008 at 6:43 pm

Yep.

Something most people who use debit cards don’t realize is that you can be liable for up to $500 of fraudulent purchases–and that’s $500 of your actual cash, NOT your credit line. If you have a credit card and decent credit you can probably blow off a $50 loss. If you’re not doing so hot and someone steals your debit card, you probably can’t hack losing half a grand. Debit cards just don’t enjoy the same federal regulation that creidt cards do.

Also, many gas stations will put a hold on your debit card for as much as $75 until the gas station figures out you’ve got enough in your account to cover your gasoline purchase. They don’t pull that with credit cards.

Debit cards are still useful as ATM cards, and they work for smallish online purchases as well, but they are NOT a substitute for credit cards, and people need to realize this.

Then again, a credit card works best as a credit *line* that you hardly ever use, or only use for very small amounts or for something that’s in your budget anyway that, as you said, you pay off the same month. It’s lousy as a source of easy loans. Look at it this way, I don’t ever hear about people purchasing cars on credit cards, even though some cars are cheap enough to fit into a $3000 or so credit line. If you wouldn’t do it for $3000 worth of car you shouldn’t do it for $3000 worth of shopping sprees at The Limited, either.

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