Howdy, fam! I’m writing to you today from the wide world of credit cards. Maybe you’re new to the idea and considering why you should get a credit card. Or maybe you’ve had a credit card for ages, but need a refresher – there are always new things to be learned on this topic.
Did you know credit cards were only just introduced in 1950? That means banks and consumers are STILL evolving offerings as they learn. As consumers’ needs change, so do the credit cards available. This means that even if you’ve had a credit card for years, there may be new information here that’s applicable to your financial story.
Why You Shouldn’t Get a Credit Card
Before we jump into the reasons why you SHOULD get a credit card, let’s take a beat and talk about scenarios in which you should NOT get a credit card. Personal finance is personal, and you’ve got to know your limits when it comes to money. Credit cards are not for everyone, y’all. Here are a few reasons why a credit card could be a bad idea for you:
- You don’t have the self-control needed not to get into debt. Most Americans already have debt of some kind. There’s absolutely NO NEED to add to that balance. If you feel you won’t be able to resist the temptation, and will likely overspend, a credit card is NOT for you.
- You don’t have the discipline to pay off the entire balance monthly. Once you begin to carry a balance, you’ll start paying interest. With a lot of credit cards, this can be a cringe-worthy amount of money each month. Your $100 purchase that seemed so easy originally is now adding up to a whole h*ck of a lot more.
- You’re planning to use the card to cover an expense you can’t afford currently. This is a slippery slope. Putting that expense on a credit card is going to cost you WAY more money in the long run. As Paula Pant preaches, you can afford anything, but not everything.
If any of the above scenarios apply to you, RUN (do not walk) AWAY from that credit card application. It’s just not worth it, my friends.
Related posts:
Credit Cards Are Not Created Equal
Something to keep in mind when evaluating why you should (or shouldn’t) get a credit card is not all cards are created equal. There are lots of different types of cards to choose from:
- Standard consumer credit cards: This is your typical Visa, American Express, Discover, etc.
- Student cards: Credit card companies understand students have different needs than other groups of people. And they also know if they can snag a student early, they’ll benefit from that business for a long time.
- Business credit cards: These are for (of course) business owners. They often have special features specific to businesses – things like credit limits for employees’ credit cards and terms that suit the business’ needs.
- Store or merchant credit cards: This is your Target, Amazon, Ashley Furniture store card. They’re designed to get you to spend more money in their store than you normally would. Store credit cards often have super enticing introductory offers, but usually lock you into an outrageous interest rate. These cards can quickly become dangerous if you’re not able to pay them off in full each month. I won’t ever be an advocate for this type of card — there are too many risks with not enough benefits.
Secured vs Unsecured Credit Cards
If you’ve ever been on a mission to improve your credit score, you’re likely familiar with secured credit cards. This type of card requires you to put a certain deposit amount down before you’re able to charge any money to the card. The financial institution will happily hang onto that deposit until everything is paid back.
For example, if you put $250 down as a deposit, your credit limit will likely mirror that deposit – $250. If you continue to pay off the balance in full and make regular payments, many secured credit cards will gradually increase your credit limit as a reward. Or, they may provide you with new offers for unsecured cards.
Think of this type of card like training wheels – there are boundaries in place to minimize the risk you (and the bank!) are taking on.
If your credit score is low, or if you’ve never had credit before, that’s a serious reason for considering a credit card. Even if you don’t qualify for an unsecured credit card offer, you will likely qualify for a secured card. A secured card, like training wheels, helps you stay on track as you work to improve your credit score.
Why You Should Get a Credit Card
Now that we’ve covered why you shouldn’t get a credit card, and all the different types of cards, we’re ready to finally dive into why you SHOULD get a credit card. To be clear, this list is primarily centered around consumer credit cards. NOT store cards. (Remember, in most cases, just say NO to store cards.) Here are just a few reasons to consider getting a consumer credit card:
Credit Cards Have Built-In Consumer Protections
Credit cards have built-in consumer protection for you that just isn’t available with a debit card. I used this perk myself recently.
I ordered a specific tchotchke online, and when it arrived, it was already broken. The merchant refused to honor my refund request, but I was able to elevate the issue through my credit card company. They removed the charge and handled the negotiation with the merchant on my behalf. Pretty slick, huh? After that experience, this benefit is at the top of my list of reasons why you should get a credit card.
If I had purchased that tchotchke with my debit card, the money would have immediately been removed from my checking account, and I would have had to fight the merchant directly, likely to a lower degree of success. Using a credit card gives you an invaluable layer of protection.
Additional protection perks sometimes include car rental insurance, travel insurance, or extended product warranties on items purchased. Check the fine print on your offer to determine what additional protections are included.
Credit Cards Help Build Your Credit
Credit card companies report your activity to all three credit bureaus (Experian, Equifax and TransUnion), so as long as you’re using the card responsibly, making timely payments and not overloading the balance, it can help increase your credit score.
Becoming an authorized user on someone else’s credit card can also help build your score. It’s a little like riding the coattails of someone else’s responsible credit card use. They can add you to the account without giving you the credit card (meaning there’s no risk to them), and after a few months, you’ll see your score begin to increase as your report begins to reflect the credit card owner’s responsible behavior. This is a common way for young adults to begin to build credit.
Credit Cards Make Tracking Your Expenses Easy
We all know I’m a fan of tracking your money. Having all of your expenses in one place makes it super easy to track your spending categories against your budget. It also makes transferring expense details into a third party budget tracker like Mint or YNAB a snap.
Get Credit Card Rewards
As a reward for using their credit card, lenders provide you with incentives, and sometimes those incentives can be quite, well…incentivizing. Many cards offer sign-up offers that can be worth hundreds of dollars. Others offer cash back on certain categories or travel points. In fact, I’ve been able to pay for most of my personal travel in the last couple of years with my points.
If you’re really interested in ways to fully optimize the credit card rewards you can receive for free travel, I recommend looking into the wide world of travel hacking. The travel hacking community is passionate about traveling for free using various travel rewards cards. There are some really impressive stories about round-the-world travel and luxury travel that people are able to do at very little real cost to themselves.
Credit Cards Give You Access to Emergency Funds
I hesitate to include this perk on this list, because I KNOW everyone reading this has a healthy emergency fund set up. RIGHT? Right. But, in the off-chance that you need access to funds quickly, credit cards can be a good way to insulate yourself against emergencies. As always, the balance MUST be paid off on time, but there’s a little cushion (around 30 days) available to help you get through the unexpected.
Credit Card Best Practices
Credit cards can be a terrific tool when used responsibly. In most cases, the benefits outweigh the risk. HOWEVER, credit cards can also be dangerous when you’re not making sound financial decisions. Here are a couple of best practices as you consider why you should (or shouldn’t) get a credit card.
Don’t Close Your Credit Card
There are five specific items that factor into your credit score: length of credit history, payment history, total amount owed, types of credit and new credit. If you close your credit card, 3 of the 5 credit score factors will be impacted.
Because length of credit history is a part of the credit score calculation, it’s in your best interest to keep your credit cards active as long as you can. Lenders also like to see a mix of different types of credit, so if you’re closing your only credit card, you’ll likely see a drop in your score. And, don’t forget that closing a card will also impact the amount of credit you have available, which can affect the ratio of “balance to available credit” lenders are looking at.
There are exceptions where it would make sense to close the card. But consider the impact carefully – if you need access to credit soon, it may be best to delay closing the card.
Be Mindful of Credit Inquiries
Any time you apply for credit, your credit score will get dinged. It’s typically a minor adjustment, but it’s another important thing to remember if you’re going to need access to credit soon. Hard inquiries (or “hard pulls”) typically stay on your credit report for about two years.
Avoid applying for multiple credit cards or loans within a short time frame. That kind of activity can trigger lenders to believe you’re a high-risk customer who’s short on money.
Pay Off the Balance Monthly and Do Not Miss Payments
This one should go without saying, but please, PLEASE do not carry a balance on your credit cards. (am I above begging? NOT AT ALL) The interest rates on consumer credit cards can be outrageous. The interest will accumulate at a quicker rate than you anticipate and it’s a cycle that can be difficult to get out of.
Also keep in mind that when it comes to your credit score, missed payments are going to stay on your report for SEVEN years. Ouch. And as long as they’re included in your credit report, those line items will impact the credit you have access to and the terms you’re offered.
Be Aware of Annual Fees
Credit cards with jealousy-inducing rewards often come with a hefty price tag – sometimes $500+ per year at the higher levels. Be aware of these fees when signing up for your credit card. It’s helpful to understand how much the fees are and when they will hit your account so you can appropriately plan for them down the road.
Compare and Research
Do NOT apply for a credit card unless you’ve done a bit of research first. We talked earlier about how credit cards are not created equally. That applies to the lenders themselves, as well. Some lenders are known for being more predatory or difficult than others.
Check out this list of the “worst credit cards” by WalletHub as an example. Some of these cards have fees ON TOP OF fees, fam. That’s what we call bad news bears, folks. Do your research so you don’t get tangled up with a scary credit card.
Resources I recommend for researching the best credit cards:
How to Opt Out of Credit Card Offers
Here’s a bonus for you. If you’re tired of hearing from every single credit card company in the world each week, it might be time to add your name to the email and phone call opt-out lists. It won’t eliminate all offers, and may take some time to take effect, but it can help minimize the amount of mail and calls you get.
For opting out of mail offers, use optoutprescreen.com. To opt out of phone calls, add your number to the Do Not Call list.
In Conclusion
We’ve covered a lot of ground today, and at the same time, just scratched the surface on reasons why you should (or shouldn’t) get a credit card. If you’re considering opening a new credit card, do your research and follow the best practices outlined here. I’m a firm believer that if used responsibly, the benefits far outweigh the inherent risks.
Let me know in the comments below if you’ll be taking any action after reading this post. Why should you get a credit card?
My friend, you hit ALL the great points in this post. Your recommendation of who should not get a credit card, explaining the difference between secured and unsecured cards, and even mentioning why you should not close a credit card.
I’m a huge proponent of paying off credit cards every month and not purchasing anything with a credit card that you cannot afford.
This was a great post. Keep up the great work.