Credit cards sometimes get a bad rap – why should you have one? Some people are afraid of paying fees or interest, but by using them responsibly you can make them work for you. Not only will it help you in your day-to-day spending, you’ll also build up your credit, giving you the chance to get a much better home or auto loan. Learn more of the benefits that come from using credit cards responsibly in our Q&A video with credit expert John Ulzheimer.
Hi I’m John Ulzheimer, a credit expert who contributes to Credit Card Insider.com. Today’s question is this: Why should I own a credit card? This is an excellent question.
Credit cards unfortunately and unfairly get a very bad rap, have very bad reputation. I think there are four primary reasons why you should have a credit card if not multiple credit cards in your wallet at any given time.
First is they’re cheap. Don’t let anyone convince you that credit cards are expensive, that’s simply not true. There are many credit card options that have absolutely no annual fees at all so carrying the card in and of itself does not come with any sort of cost. Interest on credit cards can get expensive, the average interest rate right now is somewhere around 15%. Interest is not a fee, interest is a cost that is incurred when you carry a balance from one month to the next which is called revolving. And that’s optional.
You’re not forced to carry a balance from month to month, in fact if you use your credit cards modestly, responsibly, and sparingly then you’ll never ever carry a balance because you’ll likely be able to pay them off at the end of every single month before the due date. That means no interest and therefore no cost at all to carry the card.
The second reason I think you should have credit cards is because of the benefit that they’re going to give to your credit reports and credit scores. Prepaid debit cards and debit cards or other plastic options, neither of those report activity to the credit reporting agencies so there’s no benefit to your credit reports from using those types of products.
Credit cards on the other hand are reported to the credit reporting agencies and if you use the card responsibly, meaning that you’re paying them on time, and you’re keeping a low balance relative to the credit limit, it’s actually going to help benefit your credit reports and credit scores overtime which obviously is going to be very helpful someday when you want to go borrow money to buy a car, borrow money to buy an expensive house, you’re going to want to get a really low interest rate and having solid credit reports and scores are a very good way to get there.
Third: portable capacity. Not a lot of people think about this as a benefit to credit cards because it’s almost a given but what else can you carry around that’s worth 10, 15, 20, 25 thousand dollars and gives you that type of portable buying power? Nothing. Prepaid debit cards don’t do it, debit cards don’t do it, you don’t want to carry around checkbooks, you don’t want to carry around a lot of cash, and a credit card is a very very effective way to have a lot of portable capacity for business trips, vacations, or even just tootling around your house for home shopping activities.
And then the last reason that credit cards I think are a great thing to have in your wallet are the fraud protections. The Fair Credit Billing Act, which is a federal law, limits your liability on credit card fraud to no more than 50 dollars, and on top of that the four major credit card networks, Visa, MasterCard, American Express, and Discover, all have zero-liability policies on top of the Fair Credit Billing Act protections, which means that if someone were to steal your credit card or somehow open a credit card in your name, or skim the information off of one of your existing credit cards and then go out and replicate or use it fraudulently, the law says that the bank cannot hold you liable for more than 50 dollars of the fraudulent use.
But the banks themselves have chosen to cap the liability at zero dollars, so you have absolutely no fraud issues when it comes to credit card use. So in my mind it’s an extremely safe way to engage in commerce not only online but also physically if you’re at a gas station or grocery store or at a home improvement store at some sort of retailer’s.
So those are the 4 reasons why I think you should absolutely always have credit cards in your wallet: They’re cheap, they benefit your credit, their great portable capacity, and they’ve got fantastic fraud protections.
If you have any questions pertaining to credit or any other financial topics please submit them to Credit Card Insider.com. Thanks for watching and have a great day.