Oftentimes, the first thing consumers forego when faced with a financial challenge is using their credit cards. Prior to the recession in 2008, there were 496 million credit cards in circulation in the United States; just two years later, that number had dropped to 379 million. Fortunately for the economy – and the credit card issuers – credit card usage has rebounded nicely since the recession, with 435 million cards in circulation, and that number is expected to reach 500 million this year.
Besides the rebounding economy, which has increased consumer confidence, one of the potential drivers for the increase in the number of credit cards in use is mobile commerce, also known as online shopping. Mobile commerce is has grown exponentially over the last few years, and overall online sales via smartphone was expected to surpass desktop sales by the end of 2017.
Despite recent advances in mobile payments, credit cards are still the most trusted and convenient payment type, and with more cards having various types of rewards from cash back bonuses to frequent flyer miles attached to them, consumers are considering credit cards more today than at any time since the recent recession. Credit card usage also helps give mobile payments a boost – the method of payment tied to Apple Pay, Android Pay, Samsung Pay and various other Pays including those from banks, is almost always a credit card; as some banks do not allow debit cards to be tied to a mobile payment wallet.
Below are some reasons – beyond convenience – why you should put your cash away and whip out the plastic (or your smartphone) every time you shop:
Build your credit rating. If you consistently use a credit card to buy goods and services, and pay it off every month, you can establish a good credit rating, or rebuild a bruised one if you’ve had past problems. A good credit rating is not just about getting a good interest rate when buying a car or a house. Right or wrong, credit ratings are used to determine worthiness for a number of things, including car insurance and employment. Just make sure you spend within your limit and can afford to pay the bill in full each month to avoid racking up interest charges, which can be quite astronomical, especially if you’ve had credit problems in the past.
You can earn rewards. Many credit cards today come with some kind of rewards, usually in the form of cash back bonuses, points and frequent flyer miles that you can earn with each dollar you spend. Sometimes they will have sign-up bonuses, too. Do your research and choose cards that best fit your lifestyle and spending habits (a frequent flyer miles reward card would not be of any benefit to someone who does not fly), and you can easily earn miles, points or cash bonuses without spending any more money than you usually would.
Credit is safer than debit. A debit card and a credit card may look the same, right down to the Visa or MasterCard logo on the front, but they are very different. A debit card is generally tied to your checking account, meaning that when you use it to make a purchase, you are withdrawing actual cash money from your checking account. While this may be very convenient by helping to keep your credit card balances low and ensure you are paying “cash” for your purchases, if fraud happens, debit cards are handled very differently. As soon as you report credit card fraud, the bank shuts down the account and issues you a new card. You don’t lose any money because no actual money has been stolen. With a debit card, however, the money is missing from your checking account, and even if you report the fraud right away, it could still be weeks before the bank reimburses you, meaning you could be out a substantial amount of money for a long time. The result could be your inability to make your major monthly payments, like a mortgage, rent, or car payment.
You don’t need to carry cash. If you’re like most people, chances are you still like to have some cash in your wallet or pocket, but the more you use your credit cards, the less you will need. Many vending machines even accept credit cards these days, so there is no need to find an ATM machine and then pay $3.50 for the convenience of accessing your own money so you can buy a bottle of ginger ale. Not to mention if you get robbed – as in the point above, if a credit card is stolen, your issuer will replace it, and you will lose nothing. If cash is stolen, it’s just gone, never to be seen again, whether it’s $5.00 or $500.00.
Credit cards are great for emergencies. It’s 10 degrees below zero outside and your furnace breaks down. It’s 90 degrees in the shade and your refrigerator dies. Your car needs a new transmission. These things are a part of life. Unfortunately a new furnace, new fridge and new transmission don’t come cheap, and most of us do not have $2,000+ cash on hand to pay for them. This is where credit comes in handy as an emergency tool. It is a good idea to have one credit card with a zero balance set aside for emergencies, such as those mentioned above. Use it every couple of months or so for a small purchase just to keep the account active, but then put it away again.
When used properly, credit cards can be the most cost-effective and convenient way to pay for goods and services. They are an excellent tool for helping to build and repair credit, and are easily replaced in the event of a theft or data breach. If you make sure you pay off your balances in full each month, you can reap the rewards of building excellent credit and earn some bonuses on the side.