Having a credit card is important to build your credit. Below are the 10 reasons for when to use a credit card. And a few of the reasons for when NOT to use your credit card.
When to use your credit card:
- One-time bonus: if you have good or excellent credit scores, you can get approved. Rewards can be redeemed such as travel, gift cards, merchandise, statement credits/checks.
- Cashback: some cards offer 2%, 3% or even as much as 6% cashback on selected purchases.
- Reward Points: allow cardholders to earn one or more points per dollar in spending. Certain earnings achieved and points can be redeemed for travel, gift cards from retailers/restaurants or merchandise.
- Frequent-flyer miles: generally earn miles at a rate of one mile per dollar in net purchases. How valuable the reward actually is depending on the type of airline ticket you purchase with miles/points.
- Safety: easier to avoid loses/fraud. It can take longer for fraudulent transactions to be reversed and money restored. With credit cards, you notify the credit card company and do not pay for the transactions
- Keeps vendors honest: it helps with paying for larger transactions (ie. home renovations). If something goes wrong, you can dispute the charge which withholds funds from the company. You can either get your money back or sometimes the credit card company will help you find a new company.
- Grace period: debit card purchases get removed immediately but with a credit card, it remains in your account until you pay the bill. It saves you money as it is cheaper than the initial purchase amount. Paying with a credit card, you do not have to watch your account balance so closely.
- Insurance: automatically comes with a number of consumer protections (ie. rental car, travel, product warranties)
- Universal acceptance: credit cards are a preferred method of payment. It makes it easier to charge customers of any damage they cause to a room/car. It also protects the amount on credit cards for potential charges.
- Report your payment activity to credit bureaus
When NOT to use credit cards:
- Cannot pay credit card balance in full on time
- Spend more than you can afford
- Only get a credit card with a low credit limit and have a hard time staying under the balance
Be cognisant about when and how you use your credit card. It is not something you take lightly.