Are you hesitant to use a credit card? You certainly aren’t alone. While the credit card has become a more commonplace part of life over the past few decades, they still aren’t universal. The most recent data on the matter from the U.S. Census Bureau indicates that roughly 70 percent of American households had credit cards. As that percentage ticks upward, though, it’s becoming more and more important to have a credit card in your wallet—and to use it on a fairly regular basis. In this post, we will explore why having a credit card is so valuable, as well as why some of the common fears or reservations about credit cards are easier to protect against than you might think.
The Credit Card as an Essential Item: Why You Need One in Your Pocket
A few decades ago, credit cards were seen mostly as a gimmick. A lot more people paid in cash or check at that time, or maybe by debit card. In the late 1970s, Federal Reserve statistics show that only around 16 percent of Americans had credit cards.
As more and more people have started to rely on credit cards, it makes sense that the financial system has shifted to favor them. Everything from online shopping to self-checkout terminals at grocery stores has helped prioritize credit or debit cards as the most convenient option for payment, if not the only one. Credit card companies have made having a credit card—and using it for everything—that much more attractive by building in benefits such as cash-back offers, airline miles, or points at your favorite businesses. Perhaps most importantly, everything from getting a mortgage to signing a lease to applying for certain jobs requires a credit check; using a credit card and making payments on time is arguably the easiest and fastest way to build your credit card.
That’s not to say that life is impossible without a credit card. You can make orders on Amazon with a debit card. You can still pay for groceries with cash. You can build credit by paying your bills on time, especially if you ask your landlord to report your rent payments to the major credit bureaus.
However, there is little doubt that having a credit card can make life easier. Knowing you have a way to pay for things—even in emergencies, even if you have no cash, even if your cellphone is dead, even if you’re lost or stranded somewhere—is a huge comfort. Being able to show a solid credit history from years of credit card transactions and timely bill payments makes it easier to buy a house, lease a car, or rent an apartment. Having a card that racks up rewards can save you a lot of money on flights, gas, or shopping trips at your favorite retailer.
One of the most important benefits of using a credit card rather than relying on cash for everything is security. If your wallet gets stolen and it had $200 inside it, that $200 is very likely gone for good. It’s very difficult to track, trace, or recover stolen cash, or even to get reimbursed for it by an insurance provider. If your credit card gets stolen, there are protections in place to shield you from fraudulent charges made on that card. All you have to do is notify your credit card company (or your bank or credit union) that your card was stolen or compromised, and they’ll cancel the card; you won’t be held responsible for the fraudulent transactions. Credit cards even have an advantage over debit cards when it comes to identity theft. Fraudulent use of your debit card can quickly exhaust your bank account, leading to insufficient funds in your account, bounced checks, missed payments, and other problems. Sorting out credit card fraud is faster than getting money restored to your bank account from a stolen debit card, meaning it won’t have as much of an impact on your finances, your credit score, or your life in general.
Credit Cards and COVID-19
If anything has proven the importance of having a credit card, it’s COVID-19. The pandemic has not only brought a massive uptick in online purchases for most consumers, but it’s also led many businesses to ban cash payments temporarily. The push for “contactless” payments that don’t risk virus exposure to either the buying or selling party has made credit cards even more essential than they already were. It is entirely possible that consumers who didn’t have credit cards before the pandemic are going to want them now.
Using Your Credit Card Responsibly
Of course, all the benefits of a credit card can fall by the wayside if you don’t use it responsibly. Treating a credit card as “free money” will always be a recipe for disaster. Instead, use your credit card as if it were a debit card. Aim never to charge more to your credit card than you can pay off with money that is currently in your bank account. That way, you get the peace of mind of knowing that fraudulent charges or emergency spending aren’t going to lead to an insufficient funds problem with your account, but you also avoid the spiral of overspending and credit card debt that has led 55 percent of Americans with credit cards to accumulate credit card debt. A credit card can do massive damage to your credit score if you aren’t careful, but paying your bills on time (and in full, if at all possible) can allow you to enjoy all the perks of a credit card without any of the drawbacks.
If you are interested in getting a credit card and want to learn more about how you can manage it responsibly, our team at Resource One Credit Union is here to help. Visit one of our credit union locations today to get started.