5 Benefits of Using Credit Cards

Credit cards have earned themselves a terrible reputation over course of the recession and financial crisis as card issuers have routinely abused their customers with high interest rates, late fees, and declining credit limits. Credit card debt is a problem that burdens millions of consumers who lack the resources and self control to spend only as much as they earn. For years credit card companies flooded consumer mail boxes with offers for credit cards that were easy to obtain but over the past 18 months, some card issuers have actually paid their customers to close out their credit accounts.

In spite of credit cards having a bad rap, there are several benefits to credit cards that are worth understanding. Used properly, they are a valuable financial tool, an always-available emergency fund, and a source of rewards for consumers. Here are some of the benefits of credit cards.

Interest Free Financing: It’s common to think of credit cards as a very high-interest source of financing. However, for the 30%-40% of consumers that pay off their balance each month, the credit extended to cover purchases each month is an interest free loan since no interest accrues as long as the bill is paid on time. A goal of any credit card holder should be to pay off their balance completely each month.

Fraud Protection: In spite of the negatives associated with credit card debt, credit cards do an effective job of protecting their clients from fraud and identity theft. As long as the theft of a credit card or of your identity being used to obtain a new credit card in your name is reported in a timely manner, the card company will refund the charges. It’s important to monitor your monthly activity to make sure there are no charges that were made without your approval.

Credit Repair: Abusing credit cards is one of the quickest ways to sink your credit score, but showing a pattern of accumulating charges and paying them in full each month is a great way to improve your credit score. Lenders are looking for a pattern of consistency in payments and credit cards are one way to show that to potential sources of loans.

Rental Car Insurance: Almost all credit cards come with supplemental insurance coverage for rental cars. Most rental car companies offer consumers the right to purchase coverage for a daily fee. However, read the fine print in your credit card information and you’re likely to find that you’re covered just for carrying that particular card.

Reward Programs: This is a benefit that most people are aware of but many don’t take as much advantage of these programs as they could. Still, millions of consumers are able to cash in and receive airline tickets, electronic gadgets, hotel stays, and even cash back as they accumulate points by making purchases with their credit card. Some award programs are being eliminated as credit card issuers struggle in this economy, but many still exist and are worth the annual fee that they might charge to participate.

Popularity: 2% [?]