Credit card debt in the US totals just under $800 million among 176 million cardholders. Credit cards are painted as the bane of financial security and the ruin of your credit score. However, like most fairy tale villains, credit cards are not all bad. When used responsibly over time, credit cards can be a benefit, give you peace of mind, and help you get a good interest rate on a car loan or home mortgage in the future. Responsibly means paying your balance in full to avoid high interest charges or working toward paying down the debt if you already owe more than you can pay now. Here are five reasons to get a credit card.
1. To Build Your Credit Score: Responsible use of a credit card helps develop a good credit history, proving that you are reliable and able to pay bills on time. The FICO score scale ranges from 300 to 850, with most people scoring between 600 and 800. The best interest rates on mortgages and loans are offered to those with scores of 720 and above.
2. For Traveling Abroad: Credit cards offer lower foreign currency exchange fees than just trading cash. It’s safer than carrying cash, and you won’t be stuck with the foreign change. Check your credit card’s terms for other fees; what would it cost to withdraw money from an overseas ATM? Do consider which credit cards you bring, though; VISA and MasterCard are the most commonly accepted networks, but Discover Card is rarely accepted outside the US. Most European countries use credit cards with embedded microchips that are much more secure than magnetic stripe American cards, so merchants may ask to see your passport or other ID to use them. American companies help customers avoid fraud by suspending your card if it is used out of the country, so be sure to notify the credit card company of your plans to avoid the hassle of a suspended card during your relaxing getaway. Before you go, make sure you have the phone number for your card issuer that works internationally in case you do encounter problems.
3. For Security: The security of carrying plastic instead of cash is clear, but credit cards also provide more protection than debit. A debit card takes the amount charged out of your bank account immediately; with credit, you have the opportunity to review your statement in time to take action.
4. To Get Credit Card Rewards: Getting rewards like free airline miles and cash back can feel like getting an early birthday present. The caveat lies in controlling spending; buying just to earn rewards is a financial self-sabotage. However, if you use your credit card for regular costs like gas or groceries that you would have bought anyway and pay your balance in full each month, earning rewards is like getting something for nothing. Who wouldn’t want that?
5. For Making Reservations: Many hotels and car rental companies won’t take a reservation on a debit card. If they do, they place a hold on the full amount, reducing your available balance long before the date you use the service.
The old saying about responsibility holds true for credit cards too. Credit cards give you the power to avoid exchange fees, build credit and earn rewards, but with great power come great responsibility.