Why Credit Cards?

by njc2o

 

For me, its for the rewards and security.

 

To get more specific:

  1. Security. When you use a debit card out in the world, you’re giving the world a more direct line to your actual money. Every time you use it, at an ATM or debit transaction point, you’re pulling cash directly out of checking. So if your card is compromised, your actual cash is gone. Compare that to a credit card. You accrue a balance, which you then pay down. If someone steals your credit card and racks 10K of charges up, you just temporarily owe 10K while you sort out the fraud. You’re not out of pocket any money at all. Get a card from a lender with a solid reputation for fraud handling and customer service, and your chances of actually being negatively impacted (besides the obvious inconvenience of having to sort everything out) are low. While you figure out your debit card fraud, you’re actually out the cash. If you have bills due, ouch!
  2. Rewards: points, cash back, etc. You should not use credit cards to rack up debt unless there is no other option. Generally the interest is too high, late fees and other penalties are drastic. You should use a credit card to (1) add a layer of protection between your transactions and your actual money, (2) take advantage of the “free” shit banks give out, and (3) boost credit utilization. Under this idea, only spend what you can immediately pay off, set up a monthly autopay on or before your statement due date, and you’re golden. Good cards will give you miles (to use on travel), cash back (up to 3% in some circumstances), or other similar benefits. Basically per dollar you charge, you’ll get some “unit” of value to incentivize using their card over the others. I’m a moderately high spender, and I get some solid miles kickbacks from my Venture card, and the American Express provides various benefits, as well as miles and concierge services for travel. It’s nice to have! With a debit card, I’d have none of those benefits.
  3. Credit utilization: TLDR: in the US, your credit score is a huge factor in determining whether you can get a loan to buy a house, car, or other large purchase that you’d like to finance. If you have NO credit history before attempting a purchase like this, you’re either SOL or you’ll get only awful subprime lenders lining up for your business. A low limit credit card, starting early in life, that you pay off 100%, is a great way to pump up your creditworthiness by the time you’re in a position to buy a house, for example.

 

 

 

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