The Value of a Credit Card in Today’s World

Credit cards transformed spending behavior. Before their introduction, everyone carried a check book or used cash to make their purchases. When they traveled, they often bought travelers’ checks that were seen as the most secure way to carry money. These days, issuing checks is rare though of course e commerce has accelerated the demise of checks.

When credit cards were introduced, the main benefit seemed to be one of convenience but that ignores the fact that the card companies are seeking to make their profit; that comes from the interest they charge on month end balances. They set credit limits for each user, though there is a strong argument that they were fairly casual about those limits and would often raise them when approached to do so without considering affordability.

If they are used properly with the full statement amount paid each month, they are very valuable financial tools for several reasons.

Credit Score

 

Your credit score is almost the label by which you are judged. The better you score, the more positive others will react to you, even potential employers. It is one sign of your reliability. If you have a card and always clear your balance on time, that will help your score. Whether you are simply seeking insurance or something like a mortgage, a good credit score helps.

 

Rewards

 

Card rewards represent discount in a number of sectors. On the surface, they are for nothing and might add up to as much 10% which is certainly worth having.

 

E Commerce

 

So many people shop online these days and in some sectors, such as travel and accommodation it sometimes appears that it is the only place where you can buy. A credit card, with the details encrypted to no unauthorized person can get access, is the best way to buy online.

 

A History

 

If you use a credit card for your purchases, you have a history of your spending if you want it without the bother of keeping records personally.

 

Emergencies

 

If something unexpected comes along, a bill that requires your immediate attention, then a credit card on which you have credit can solve the immediate problem after which you can look at your finances

 

Interest-Free

 

You are getting money free of interest from the time you make your purchase until the time of your statement. As long as you pay your statement in full, you will not owe the credit card company anything. Remember that is not the case if you withdraw cash at an ATM. You will be charged interest until you have settled the bill.

 

Purchase Protection

 

If you buy on a credit card and want to make a claim because of a mistake, fault etc., then you have the card company on your side in the fight, far better than if you had paid cash and were alone.

 

Warranty Protection

 

A card company offers free warranty on occasions, often doubling the year’s cover that the manufacturer gives you in the deal. You will find that you might get a replacement for faulty goods under this protection while there may be insurance benefits elsewhere such as auto accidents.

 

Loss or Theft

 

If you lose something or if you are robbed of cash then you rarely have a chance to recover them. If you are using a credit card for purchases and you lose it, if you report it promptly and it will be blocked and replaced at no cost.

 

Convenience

 

There is no doubting the convenience of a card over carrying a wallet full of dollars.  It is particularly the case when you are away from home, perhaps traveling abroad?

 

The problem arises if you allow your spending to get out of control. As soon as you develop a balance on a credit card, simply paying the minimum the company requires each month, you will be charged a high rate of interest. It is effectively how the card companies want you to behave. As long as you resist the temptation they are putting in front of you, all will be well. Figures in the USA today suggest that too many people are behaving just as the card companies want. Don’t join them.