You should avoid credit card debt due to the crippling interest rates and the long-term havoc it can wreak on your finances, but that doesn’t mean you should necessarily avoid using credit cards. In fact, there are a number of benefits to using them, including the chance to build your credit profile, and the opportunity to earn valuable rewards.
The important thing is to use your credit card as if it were a debit card.
That means not spending more money than you have, and not carrying a balance month to month by just paying the minimum amount or only part of your balance, which incurs interest fees the next month. Instead, you should pay the balance off in full every month, which not only helps you avoid interest, but also means that you don’t end up overspending and winding up in debt.
1. To protect your bank account
Credit cards offer more robust fraud protection and offer a degree of separation from your checking account, which serves as an added safety measure.
2. To earn rewards
Although many rewards debit cards used to exist, the Durbin amendment to the Dodd-Frank consumer protection act passed in 2010 limits the fees banks can charge merchants to process debit cards. Consequently, consumer use of debit cards at retailers is less profitable to card issuers, so those issuers have less reason to incentivize consumers to use them.
3. To build your credit history
Just about every adult has a credit profile, which is kept by credit reporting bureaus. This profile contains information about every loan you’ve applied for, held, and paid. All of that information makes up your credit score, which is a numerical representation of your credit profile.
4. For better purchase and travel protections
Many credit cards offer certain purchase and travel protections. For example, the Chase Sapphire Preferred® Card offers robust coverage, such as trip delay insurance— that covers your costs for things like hotels, clothing, food, and toiletries for up to $500 per person if your flight or other travel is delayed overnight, or more than 12 hours during the day.