Paying for purchases with a credit card can offer many advantages if you can commit to spending only what you can successfully pay off in full each month. In fact, many of the advantages credit cards provide can save you money in the long run.
Some common advantages of having a credit card include:
- Paying for purchases over time
- Credit card rewards
- Fraud protection
- Free credit scores
- Price protection
- Purchase protection
- Return protection
- Extended warranty coverage
- Travel benefits
Paying for purchases over time. Credit cards give you the ability to pay for a purchase using your card today and pay off your credit card balance on a future date. Most issuers offer a grace period where you don’t have to pay any interest charges. Typically, this grace period lasts from the date you make your purchase through the end of the billing cycle during which the purchase was made and ends when your payment is due.
However, if you’re carrying a balance on your credit card, you usually have to pay interest on the balance owed unless you’re taking advantage of promotional 0% annual percentage rate offer.
Convenience. Using a credit card can make managing your finances more convenient than using another payment method. Your credit card sends you a statement each month detailing exactly when, where and how much you spent on each purchase charged to your card. You can use the information from these statements to keep track of your spending. Additionally, some credit cards offer year-end statements that summarize your spending throughout the year, which is helpful for taxes and other tracking purposes.
Credit cards also provide a convenient payment method when making purchases online, since you can’t pay for online purchases with cash. Using a credit card doesn’t put your debit card or bank account information at risk.
Credit card rewards. The ability to earn rewards for the purchases you make is one of the most obvious advantages of having a credit card. Each rewards program has its own system for earning, managing and redeeming rewards.
“For frequent travelers, a rewards card that offers miles or points that can be used toward flights or hotel rooms can be very beneficial,” says James Lambridis, founder and CEO of Debt MD, a service that connects consumers with lenders, credit counselors, debt settlement companies and bankruptcy attorneys. For those who prefer cash, a credit card that offers cash back as a statement credit, direct deposit or even a check may work better.
Depending on your spending habits, your rewards might even be able to pay for an entire vacation, says Lambridis. Many credit cards offer sign-up bonuses to entice you to apply for and start using them. The value of these bonuses can exceed $500. When you add up your everyday rewards with a couple of sign-up bonuses, it’s easy to see how you could cover a vacation.
Fraud protection. Federal law limits your liability for credit card fraud to $50. If you notify your issuer you lost your card before any fraudulent charges are made, or when your card information (but not the actual card) is stolen, you aren’t responsible for any fraud. Many credit card issuers take this a step further and don’t hold you responsible for fraud at all as long as you report unauthorized charges in a timely manner.
To help make your credit card even more secure, your issuer may offer virtual account numbers you can use when making over-the-phone or online purchases. This way, your primary credit card number isn’t put at risk if a data breach exposes the card information.
Free credit scores. Many credit cards now offer free credit scores as a benefit. Some credit card companies print your credit score on your monthly statements. Others offer a free credit score program or allow you to view your credit score through the bank’s website. Checking your credit score through a credit card benefit does not count as a hard inquiry or damage your score, says Lambridis.
When viewing your free credit score, make sure you understand what type of score you get. “Not all cards allow you to view your FICO score, which is the most widely accepted credit scoring model used by lenders. Some cards offer the ability to view your VantageScore as opposed to FICO,” says Lambridis. Still, free credit scores can help you view the overall trend of whether your score is improving or declining.
Price protection. Have you ever bought something, then saw the price drop a few days later? Price protection might be able to help you as long as you made your purchase on a card that offers the benefit. Price protection usually refunds you the difference between the price you paid and the lower price, within certain guidelines. While price protection has been disappearing from many credit cards lately, it is still offered on some cards.