Credit Cards: When to Use Them and When You Should Not

Just about everyone has a credit card these days; unfortunately, just about everyone uses them and abuses them as well. There are many good reasons to have and use a credit card and just as many reasons not to use them. Here are a few examples of both.

Good Reasons to Get a Credit Card

One of the main reasons to get a credit card is to build and establish credit, especially revolving credit. Credit facilities such as credit unions and banks like to see young people with good credit start applying for loans.

One of the reasons a bank or credit union or car dealer will seek to give out loans for young individuals with good credit is that they will make money on that loan. If a young college student has one or two credit cards with revolving debt, it shows the loan institution that this individual has a good history of borrowing money and paying it back.

When a young person shows that they are honoring their responsibilities in debt, the car dealer will more than likely give them that loan.

Another bonus of opening up credit is that once you begin to repay your credit card debt in a timely manner, you build credit on a credit report. A good credit rating will almost always get you a better loan rate – whether it is for a student loan or a car loan.

A credit card is also an excellent tool for emergencies. If you are traveling and something unexpected arises, you have your credit card with you just in case.

Having a credit card also teaches you discipline to live within your means.

On the Downside

Just as there are many upsides to owning a credit card, there are also some important downsides.

One of the downsides of owning a credit card is the risk of spending more than you can really afford and overextending yourself. It is so easy to get into the habit and trap of using a credit card without thinking about whether you will be able to pay back the money.

Sometimes you have everything all planned and put a whole bunch of stuff on your credit card and find out, unexpectedly, you or your spouse is taking a cut in pay. It is better to use cash and pay your bills than to overextend yourself.

Another downside is getting your card stolen or losing it. It is more than a pain to have your credit card stolen. By the time you recover the number and call the credit card company, someone has already had a party on your dime. There may be numerous phone calls and lengthy disputes before it gets resolved. Sometimes, your credit report is negatively impacted by events such as these.

Therefore, while there are ups and downs to owning a credit card, it all comes down to you. How careful and how responsible you are depends on how self-disciplined you can be at any given time that card is in your wallet.