Decades of experience have proven beyond all doubt that some individuals are (at least temporarily) better off without access to credit cards. Using a credit card wisely requires both personal discipline and a working understanding of the proper role of credit in personal financial management. Unfortunately, those qualities are not evenly distributed in the population. The consequences of unwise credit card use are painful to witness, and no doubt even worse to experience. No wonder so much of what is written about credit cards focuses on the risks of misuse and the difficulty of recovering from massive credit card debt. The truth, however, is that many individuals and families can and do use credit cards wisely. Because of the negative tone of most articles about credit cards, perhaps it would be worthwhile to list some of the benefits card companies offer that some smart credit card users may not be aware of.
All wise credit card users recognize the convenience and flexibility credit cards afford. They also realize that credit cards are nearly essential for booking travel reservations, and most online purchases. Here are some of the less obvious benefits available. Not every card offers every benefit, but the right card is easier to find if you know what you’re looking for:
Credit Card Benefits That Put Actual Cash In Your Pocket:
- Some cards offer refunds of up to 5% of the total costs of all of your purchases made with the card. (Be sure to make enough purchases to offset the annual maintenance fees many of these cards charge.)
- Some cards offer substantial refunds on purchases of particular products such as the issuer’s brand of gasoline.
- Don’t overlook the long-term value of the “float”, or the days after a credit card purchase that your money can stay in an interest-bearing account before you have to make the payment.
- In some ways, the most valuable of the “cash in your pocket” benefits come from card issuers that refund a portion of your total purchase amount directly into a long-term investment account.
Credit Card Travel and Leisure Rewards
- Individuals who are required to make frequent out-of-town business trips involving airlines and hotels can get real value from frequent flyer or frequent guest awards, especially if the company is picking up their expense account tabs. While airlines frequently blackout holiday periods for reward travel, nobody but an exhausted businessman or woman can fully appreciate the value of a first-class upgrade on a transcontinental flight.
- Business travelers that spend long periods of time on the road can also richly appreciate the ability to spend a few days with their spouse in a really nice resort hotel.
- Some cards utilize a “points based” awards program that allows card users to convert points to travel awards, gift cards, or other quality of life enhancers.
- Credit card issuers are generally for-profit businesses. They are constantly on the lookout for good customers. An individual with an attractive credit card usage profile will see a regular stream of credit card enrollment invitations featuring very enticing enrollment bonuses. Sometimes the offered bonuses are good enough to follow up on – especially if they compliment already earned awards.
Credit Card Benefits That Improve Safety and Security
- An obvious benefit in this category is that credit cards reduce your need to travel with large amounts of cash.
- Less obvious perhaps are the extra fraud protection measures (beyond those required by law) some credit card issuers provide.
- Though the terms vary widely from card to card, many credit card issuers provide truly valuable benefits such as rental car insurance and product quality warranties when their cards are used to pay for the rental or defective the product.
Credit Cards and Your Personal Credit Score
- Credit card usage accounts for as much as 30% of your credit rating. Credit rating companies want to see an unbroken string of on time payments, and all card balances kept well below credit limits.
- If an individual’s credit score has taken a hit within the past 10 years, careful management of two or three credit cards can help raise your score, and lower future borrowing costs.
Using Pre-Paid Credit Cards and Debit Cards
If your credit score has been hit hard enough, you won’t be able to get a credit card that offers real benefits – at least right away. You can, however, purchase pre-paid credit cards or open a checking account that offers a debit card. Make sure the debit card DOES NOT provide overdraft protection. These cards offer some of the convenience and benefits of real credit cards, while protecting you from most of the risks. Steadily working your overall debt level down and scrupulously avoiding late payment penalty charges, will ultimately start to pull your credit score back up.