This guest post was written by Jason Bushey. Jason is the Editor and Vice President of Creditnet.com, an online authority on topics related to credit.
For a lot of young consumers, the term “credit card” has a negative connotation. In fact, I just read a story in the LA Times this morning that explained that many young adults were dodging credit completely in the post-Great Recession era for fear of falling into debt.
Credit cards have a bit of a bad rap these days, and some of the criticism is pretty understandable. (The fees, the interest rates, etc.) But credit cards take some unfair shots, too, especially from those consumers who either a.) Don’t understand exactly how they work or b.) Have used credit cards recklessly in the past.
Look, I’m not usually one to stand up for the Big Guy, but there are some legitimate reasons to own a credit card, especially when it comes to planning for your future.
So if you’re uneasy or unsure about whether or not you should apply for a credit card, here are five of the best reasons to carry plastic in your wallet.
Credit cards can help to build credit
Why should you worry about building credit?
Well if you ever want to qualify for a home or auto loan, you’re going to need some (good) credit in your name to get approved. Using a credit card responsibly is one of the easiest ways you can build your credit profile over time, and when we say “responsibly” we mean making on-time payments each and every month and paying your balance back in full.
The more on-time payments you make, the better your credit score will be. When it comes time to apply for a mortgage, your credit history will be one of the very first things lenders consider. Make sure there’s a good number (700 or above) next to your name.
No annual fee cards are FREE to carry when used correctly
A credit card with no annual fee that’s paid off in full each and every month is essentially free to carry. Free credit cards do exist, but it’s up to a consumer to make sure they stay “free”. This means keeping a balance of zero to avoid interest, never making late payments to avoid late fees, and only applying for credit card fees that require no yearly fees.
Follow those simple steps and you’ll be the savvy owner of a credit card that costs absolutely nothing to carry.
Earn cash back or miles for the purchases you make anyway
The best credit cards are the ones that reward you for the purchases you plan on making, anyway. Cash back, miles and points are all common reward currency for purchases made with plastic. Some cards will reward you the same standard rate for every purchase you make, while other purchases will reward everyday items like gas and grocery purchases with two, three or even six percent cash back depending on the card.
One or two percent cash back on purchases might not seem like a lot, but it’s still a more lucrative way of paying for items than cash or debit. Consider a card that rewards you for the purchases you plan on making anyway when applying for a cash back card, that way your card will fit your budget rather than the other way around.
Save on big-ticket items
Speaking of rewards, the top credit card networks include online marketplaces that allow members to shop at discounted rates of 5 to 20 percent or more when they use their credit card. These discounts are often applied to big-ticket items like airfare, merchandise and concert tickets to name just a few.
Other cards will include an incentive to spend during your first months as a cardholder by offering a $100 cash back bonus when you spend X amount dollars in the first three months of cardmembership. (Not to get all algebraic on you, but X usually equals $500 or $1,000.)
So theoretically, consumers can save $100 on items they plan on purchasing anyway – be it a flat-screen TV or a cross-country flight – with one swipe of the card.
No, we’re not talking about a federal bailout, or posting bail when you run into legal troubles. We mean the unforeseen emergencies that can happen to anyone. A flat tire on the side of the road, missing travel checks abroad, stuff like that.
And actually, credit cards can bail you out in ways that go beyond quick cash. For instance, American Express offers Roadside Assistance for members, which is sort of like a stripped-down version of AAA. Visa Platinum members can benefit from something similar when disaster strikes on the road.
So not only do you have emergency cash on hand if the situation presents itself, but you can also take advantage of some of the lesser known perks that come with being a cardmember if you … well, own a credit card!
Look, in the wrong hands a credit card can do some serious financial damage. But with a little will power and a lot of impulse control, maintaining an excellent credit score with little to no debt is pretty simple. Owning a credit card should have more benefits than drawbacks. Apply for a credit card that’s right for you, pay it off each month, and enjoy the fruits of your responsible spending with low APR’s and high approval rates in the years to some.