Six Good Reasons to (Responsibly!) Use Your Credit Card

For this month’s blog, I thought it would be fun to talk about something I almost never talk about: the benefits of credit card use.

Yes, you read that right.  There are benefits to credit cards.

I spend most of my time working with people who are struggling with crippling amounts of credit card debt – and there’s no doubt that, if used irresponsibly, credit cards can wreak havoc on your life.  But I also know that, if used responsibly, credit cards can actually do some pretty great things for your finances.

In fact, as long as you pay your full balance off every month and treat your card more like an extension of your checking account (instead of a free pass to go on a spending free-for-all), there’s even a case to be made for using your credit card for, well, everything.  Credit cards are quick and easy to use, and they can go a long way towards helping you build good credit.

Here are the six biggest benefits of using your credit card (responsibly!) for day-to-day purchases:

1.    Your credit score will go up.  Your credit score is determined by several factors – your debt-to-income ratio; your ratio of available credit to credit used; and so on.  But one of the most important keys to a good credit score is your ability to pay your credit card.  Let’s say you use your credit card to pay all of your monthly bills – and at the end of the month, you pay off your entire balance.  Now, let’s say you do that for several months – or even years.  That’s a huge boost to your credit score – and a high credit score can make it easier to buy a house or a car, rent an apartment, or even find a good job.

The best way to ensure a stellar credit score is to treat your credit card just like your debit card – don’t overspend.  Don’t buy stuff you wouldn’t – or couldn’t – pay for with cash.  Pay your credit card statement, in full, every month.

2.    Credit cards offer excellent fraud protection.  Here’s one area where credit cards have debit cards beat.  Although debit cards offer varying degrees of fraud protection, credit cards definitely have the advantage when it comes to fighting fraud.  If someone steals your debit card and uses it, that money will be gone immediately – and how soon you get it back (and how much you get back) depends on your particular bank’s policy.  Until then, you’re left high and dry – and potentially broke.

If someone steals and uses your credit card, you simply notify your credit card company and, until the matter is settled you simply don’t pay for any of the fraudulent purchases.

3.    It’s super-easy to track your spending.  If you use your credit card for everything, your credit card statement becomes more than just a bill – it becomes an incredibly handy way to track your monthly spending, down to the penny.  Instead of gathering receipts, making spreadsheets, and tracking down all of your cash, debit, check, and credit card purchases, all you have to do is review your credit card bill.  Some companies even itemize your statement by category – which makes it a snap to see how much you’re spending on, say, entertainment, food, or transportation.

4.    You can put your bills on autopilot.  In a previous blog, I discussed how setting up electronic payments is a great way to ensure that you never end up with late fees or missed payments – and most credit cards give you the option to set up recurring payments.  Again, just remember that if you choose to pay, say, your phone bill and electric bill with your credit card, make sure you pay off your card – in full – every month.

5.    No overdraft worries.  Before I go any further with this one, I’d like to add the caveat that responsible credit users shouldn’t have this problem.  Ever.  After all, if you pay your card in full every month, a maxed-out credit card is never an issue.  But if, for whatever reason, you were to attempt to use a maxed-out credit card to, say buy gas or groceries, your card would be declined and you’d walk away empty-handed.

This is one more area where credit cards are a little better than debit cards.  Most debit cards     offer some sort of “overdraft protection” program, which basically means, “Hey, we     should decline your card because you don’t have money in your checking account. But we’ll     float you the cash — and charge you $35 bucks for our trouble.”  If you’ve ever had the     misfortune of racking up several hundred dollars’ worth of overdraft protection fees, you     know     how devastating this can be to your bank account.

6.    You can earn rewards.  If you only make a couple hundred dollars’ worth of purchases a year on your credit card, you won’t see a very significant return from programs that give you things like free airline miles or a small percent of cash back on your purchases.  However, if you use your credit card like cash (and pay it off in full every month), you can actually get a lot out of these types of programs.  Responsible credit card users who use their cards as their primary method of payment can rack up some pretty serious airline miles or cash rewards – and you won’t get those kinds of bonuses from paying with cash, checks, or debit cards.

Again, I want to emphasize that these benefits are only helpful if you use your credit card responsibly and carefully — as anyone who has struggled to pay off debt can tell you.  But if you treat your card like cash and avoid overspending, you can get a lot of pretty great things from credit cards.