Credit card offers are virtually everywhere! Many of us receive them in the mail or may be asked if we would like to open one when we visit our favorite store or financial institution. We are often quick to turn down these offers, but there are some great reasons to open credit cards, especially if you do not have any credit established.
Reason 1: Credit cards can help you establish credit.
Unlike debit cards, credit cards report to the credit bureaus, and nowadays you need credit in order to be financially independent. Positive credit can help you open a savings and checking account, become a renter, and can help you to get low interest rates on loans (such as auto loans and mortgages.) Opening a credit card can be a great first step to establish credit. They may be opened with low limits for those who are new to credit, but limits can be increased if the user displays responsible behaviors.
If you want to use credit cards but don’t want to pay interest, be sure to pay off the statement balance in full every month. You can charge everyday expenses to the card that you already budget for so that what you are charging is not an extra expense. Just be sure that you are still setting aside money to pay off the card each month. It is also important to use credit cards occasionally to keep them active, make on-time payments, and keep balances low so the open availability can positively affect your credit score.
Reason 2: They can diversify your credit.
Did you know that having diverse credit types influences 10% of your credit score? This is why it is important to have a mix of installment and revolving lines of credit. Installment loans (such as auto loans, personal loans, and mortgages) have fixed payments and an end date for when the loan will be paid off. These loans help to build credit, but when they are paid off, they are no longer as impactful on your credit score.
Revolving lines of credit (like credit cards and retail cards) have no end date or set payment amount. For this reason, credit cards can be used continually to influence your credit score. Having a mix of revolving and installment credit can show you are responsible with handling multiple loan types.
Reason 3: Credit cards are widely accepted.
If you find it cumbersome to pay with and carry cash, or want to avoid purchasing foreign currency when you travel, a credit card might be for you. Unlike checks, credit cards have become widely accepted by merchants. They also don’t slow you down or require exact change like cash, making it easier to pay for your everyday purchases while establishing credit. They are often internationally accepted, which can save you money by avoiding international currency order fees and mistakes with currency exchange rates. When you are considering opening a credit card, ask your financial institution if they have a card that does not charge international transaction fees, like MSU Federal Credit Union’s Platinum Plus Visa Credit Card.
Reason 4: They are safer than cash.
Using credit cards comes with many protections. If you lose your cash, it’s gone; but, if you lose your credit card, you can call your financial institution to have them block it and send you a replacement card. Sometimes, you can even block your card yourself if you lose the card by using your financial institution’s mobile app, keeping your money safe while you conduct your search.
Credit cards also offer more security than debit cards. When you use your debit card and PIN, your money leaves your checking account instantly. If a fraudster gets ahold of your card numbers and uses them, it can leave you without the money you need to pay for your bills and loan payments. This can result in late fees, negatively impact your credit score, and it can take days (or sometimes weeks) to get your money back. Instead, use your credit card! Credit cards are not directly linked to the money you have in your checking account and it takes longer for funds to leave your account when you use a credit card. This allows more time for the fraud to be blocked or stopped before it affects you financially.
Reason 5: You can earn rewards!
If you have ever wanted to be rewarded for spending money, here’s your chance! Many credit cards come with the opportunity for you to earn miles for airlines, or points you can trade in for other goods or services. If you pay off the card’s entire balance each month, you are not paying any interest and are earning yourself extra money for purchasing the things you would normally buy anyway. Some rewards cards come with an annual fee, but depending on how you use your card the rewards may outweigh the cost of the fee. Consider asking for disclosures before applying for rewards cards to be sure you are making the best financial decision for you.