Credit cards don’t put people in debt, people put people in debt. Credit cards have a negative stigma around them due to their high interest rates and the horror stories from individuals in huge debt. As a result, many people are afraid to take out credit cards. In this article I want to dispel those myths and explain some of the great benefits you of owning a credit card.
What are the benefits of having a credit card?
Benefit #1: Credit Cards will help you build credit.
Good credit isn’t something we think of until we need it. It’s not as if we go through life thinking about what our credit score is. For that reason we tend to ignore this first benefit of credit cards. Having a good credit score can save you tens of thousands of dollars in the future.
How does you credit score affect interest rates?
The better your credit score, the lower an interest rate you pay on loans. For example, let’s say you borrow $200,000 to purchase a home on a 30-year fixed loan. According to myfico.com, if you have a credit score of 650 (which is considered a “fair” score), you will pay and annual percentage rate (APR) of 5.085%. However, if you have a score of 700 (which is considered a “good” score) you will pay an APR of 4.624%. What difference does this make over a 30 year period? If you have a “fair” score, you will pay $190,260 in interest over the life of the loan. If you have a “good” score, you $154,787 in interest over the life of the loan. This is a savings of $35,473! Try it out yourself! Go to http://www.myfico.com/myfico/creditcentral/loanrates.aspx and play around with some numbers and see what you discover.
Benefit #2: Credit card companies have strength, and will help you when you need it.
Another great benefit is that credit card companies are on your side when you make purchases. If you buy a product that you are not satisfied with, and the company you bought the product from is giving you a hard time, the credit card company can help save you the headache of trying to get your money back. If a company won’t refund your money, chances are the credit card company will. This is called a chargeback. The threat of chargeback will give the company you purchased from an incentive to provide good customer service and timely refunds if appropriate.
Benefit #3: Extended Warranties
Many credit cards will extend your warranty up to a year for purchases you make with your credit card. This can come in handy, especially for large electronic purchases. There is no need to buy the extended warranty if you make you purchase with a credit card!
Benefit #4: Customer Rewards
Many cards will pay you nice rewards in the form of travel miles or cash back bonuses. For example, American Express offers 6% cash back on groceries and 3% back on gas if you get their Blue Cash Preferred Card, which costs $75 a year. Chase offers 5% cash back on a rotating list of categories and 1% cash back on all other purchases with their Chase Freedom Card. There are a number of other cards which offer great rewards and travel miles, which I won’t go into too much detail here.
Credit cards have a number of benefits to consumers as stated above. If you are a reliable and responsible with your debt, a credit card could be one of the best investments you make.