You should use a credit card when you are making a big purchase, building your credit, traveling overseas or domestically, making hotel or car rental reservations, spending money in an emergency, and even making everyday expenses. In fact, if you can use a credit card for a purchase, you probably should, because all credit cards offer a $0 fraud liability guarantee. If someone does steal your credit card information, all fraudulent charges will simply be cancelled, which is preferable to your checking account getting drained or frozen as you wait for a debit card fraud claim to get processed. And of course, when cash is stolen, it’s usually gone for good.
Rewards are another great reason to opt for credit cards when making a purchase. Rewards credit cards offer cash back, points, or miles for purchases – some of which can be worth up to 5% of the purchase amount, depending on the credit card. It’s essentially a discount on everything you buy with the card. Some travel credit cards offer benefits, such as luggage and rental car insurance, that can be very valuable to a frequent traveler. But you only get those benefits when you use the card for the travel purchase.
Examples of when to use a credit card:
To Build Credit. Credit cards are by far the easiest and most practical way to build credit history. Each month you have a credit card – even as an authorized user – credit bureaus receive information about your account. If you pay the bill on time every month and avoid racking up a big balance, you’ll have a good credit score as time goes on.
In Emergencies: Credit cards are a good option for surprise situations that no one plans for – car trouble, emergency vet bills, and household repairs, for example. And if your emergency savings aren’t quite where they should be, a credit card can offer a certain peace of mind. Sometimes paying interest can cost less than the alternatives.
For Everyday Purchases: Regular expenses like gas, cellphone bills, and groceries present opportunities to capitalize on a rewards credit card. You will ultimately save money from rewards like cash back, points, or miles. Just don’t undo rewards savings by carrying a balance and paying a bunch of interest.
For Large Purchases. Credit cards with 0% APR periods are great financing opportunities for big purchases. And they may offer extra safeguards that come in handy with a large purchase, such as price/purchase protection or extended warranty benefits. Using a rewards credit card will make the big purchase a little cheaper, too.
To Pay Off Debt. Using a credit card to pay off debt may sound contradictory. But if you have an existing high-interest debt, a balance transfer credit card could allow you to pay it off faster and for less money. Look for a balance transfer offer that doesn’t charge a transfer fee and has the longest interest-free period.
When Traveling: Hotels and car rental agencies often put pre-authorized deposits or holds on your debit or credit card. It is better to have funds temporarily held up on a credit card than your checking account. It’s also worth noting that credit cards are the cheapest way to convert foreign currency, so using a credit card overseas is an excellent idea – as long as you have one with no foreign transaction fees. Keep in mind that some credit card companies ask for notification before a cardholder starts traveling, so that they don’t mistake card activity from a new area for fraud.
It’s worth considering that your income and credit score might determine which scenarios you’ll benefit from using your credit card. For example, if you have a high interest rate or low credit limit, financing big-ticket buys may not be an option. So start small, with putting one or two regular expenses like gas or a gym membership on your card. Pay it off in full each month to create a history of responsible credit use – and to avoid credit card debt.
Lastly, there are times when using a credit card is a bad idea. Consider yourself and your habits before you take this advice to use a credit card for everything. Yes, credit card use has its benefits. But most of those benefits come with a big responsibility to not spend more than you can repay in a reasonable amount of time, and none of those benefits outweigh the negative effects of prolonged credit card debt.
If you don’t trust yourself to use a credit card for purchases, you can still build credit by simply having a credit card – even if you don’t use it.
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