Credit cards are generally viewed as handy tools that you carry in lieu of cash or turn to when you are low on funds. They enable e-commerce, making it easy to shop online – where hand-to-hand monetary exchange isn’t possible. We like our plastic because it enables us to travel light but still have the reassurance of a reliable go-to source of finances. But what is not generally understood is that using credit cards all the time – for as many transactions as possible – offers unique benefits and can be a great idea.
Convenience and Simplicity
The most popular reason for carrying a credit card is that it is much easier and more convenient than cash. You don’t have to carry a wad of bills or pockets full of change around, and even if you don’t have big pockets or a wallet you can still find room to stash a thin credit card. Most cardholders only use their plastic for some purchases, though, despite this obvious convenience. In this day and age, though, nearly all purchases can be made with a credit card, and credit cards are accepted worldwide. So you may want to consider switching over to using your credit card as your go-to form of purchase power. Of course you can always carry a little currency for emergencies, but if you get into the habit of using a credit card for everything you may find that it significantly simplifies your life while also helping to de-clutter your purse or wallet.
Strengthening Your Credit History
If you are spending cash for the majority of your purchases, you are also missing out on a golden opportunity to build a stronger credit history. Since you are paying for all of those transactions immediately anyway, why not get credit for them by putting them on your credit card, where prompt payments can significantly improve your credit score?
Oftentimes consumers are unaware that a lack of credit history and payment history can weaken their credit score. That’s because the credit agencies cannot give you points for activity that they do not know about. But whenever you use a full-fledged credit card, all of that purchase and payment activity gets reported to the major credit agencies that archive your credit history and calculate your credit score.
Keep in mind that one of worst things you can do in terms of your credit history is to make a late payment or miss a payment. People who don’t use their credit cards responsibly often fall into that trap. But if you are already spending cash, at the cash register, then you have the money to pay those expenses. Put them on your credit card, and then pay them off right away with the cash you would have otherwise used. Your frequent but responsible use of your credit card – strengthened by prompt, timely payments before the charges are due – can do wonders for improving your overall credit.
Potential Perks and Discounts
With improved credit history you also are entitled to some valuable perks. Credit card companies want to attract the business and the loyalty of cardholders who have a great track record for on-time payments and steady, consistent use of credit cards. They are ideal customers for banks that issue credit cards, so as your credit strengthens you’ll be offered cards with more attractive interest rates, terms and conditions, and cardholder benefits. Card companies offer everything from roadside assistance and car rental insurance coverage to concierge services and special discounts when you shop with their retail partners.
Plus there are literally hundreds of different kinds of cards that offer cash-back rewards or rewards that can be applied to discounts on future purchases. Gasoline rewards cards give you rewards every time you fill up the tank; airline rewards card programs let you accumulate credit toward free or discounted air travel; and cash-back rewards cards give you actual cash back on every purchase you make. These kinds of rewards programs can help you save money every month, automatically, and that is a financial benefit that everyone who relies on credit cards should take full advantage of if they can. You can earn more rewards by using your credit card for more than just shopping online or at grocery stores and restaurants, too. Pay everything including your cell phone bill or your insurance premiums, for instance, with your credit card and you will earn rewards at an accelerated pace.
Teaching Kids Financial Responsibility
If you are a parent then imparting lessons about finances to your kids is critical, so that they learn as soon as possible how to avoid mistakes and build up a stellar credit history. You may also want to give them money to spend, like at college, but you don’t want them to spend it unwisely. Hand a college student cash for textbooks and they may decide to spend it on pizza. But if you add them to your credit card account then you can go online and check their transactions as often as you like.
There are also credit cards geared toward parental control and oversight. These will even send you a text or email if your child uses the card in a place where only adults are allowed – such as a bar or nightclub. Meanwhile having a credit card to use for everything teaches kids how to manage their credit, maintain a budget, and make payments on time. Those are such valuable lessons that they are worth the price of tuition – but you can have them for free by just arranging for your child to start using a credit card, with set spending limits, and letting it be their “training wheels” for financial independence as a young adult.
Record Keeping / Tax Filing
Tax time may not come to mind when you are shopping. But at the end of the year it can be a real challenge – and extremely time-consuming and frustrating – to try to track all of your eligible expenses in order to make sure you qualify for the tax deductions or credits that you deserve. But most credit cards provide you with a detailed account of all of your transactions, neatly organized by date as well as by general categories of purchases – such as travel and lodging, groceries, gasoline, professional services, medical, and so forth.
Not only that, but you can access past statements and tax-related summaries that are digitally archived by your credit card company in your online account. Then, when it’s time to look up a particular purchase for tax filing or some other reason, you can access that data almost instantly via any secure Internet connection. Need to find a receipt for a purchase in order to validate it for warranty purposes or to get a refund? If you paid cash it might be hard to locate the receipt, but if you use your credit card for everything then your card statements are a kind of permanent record of all your transactions. Accurate documentation is the key, and when you pay with cash it is hard to keep those receipts all year long.
This is especially true if you run a business and want to take full advantage of business tax deductions. You can apply for and use a special business-oriented credit card, and most of these let you also issue cards connected to your account to as many of your employees as you want. You can set pre-established spending limits, for example, and instead of giving employees cash for purchases like gasoline or travel, have them use the credit card. They won’t be able to use fraudulent receipts as some unscrupulous employees do, and they won’t have the stress of keeping tabs on all their receipts. All of those important records will show up in your centralized credit card account. But while business credit cards can help curb that kind of abuse, the rewards earned on all the cards accrue in your own account – so you if you have a cash-back or rewards type card you can multiply those perks by having your employees use the credit cards you issue for everything. Having good purchase records also means less work for your bookkeeper or accountant, as well as your tax preparer. So if you have excellent, clear records of your purchases you can save money on the cost of paying those professionals for their time and effort.
Safety and Security
Are you accustomed to using your ATM card for purchases, such at when you buy groceries? You can have greater security and peace of mind if you keep it in your wallet and only use it at ATM machines, and instead use a credit card for shopping transactions. That’s because by federal law under the Credit Card Act transactions completed with credit cards have limited liability in case of fraud. But ATM cards do not enjoy those same protections. If your card data is stolen by a hacker in a data breach, for example, then your credit card company will not charge you for the extra illegal transactions – or your liability will be capped at $50. The same goes for lost and stolen credit cards. But if your ATM account information is hacked or the ATM card is lost or stolen, you could potentially lose all the money in your bank account as the thieves drain it dry. You won’t have the same $50 limit on losses, and that is why using a credit card everywhere is a safer and more secure practice.
Carrying a credit card and using it for all of your purchases may also entitle you to cardholder benefits such as extended warranty protection, and purchase price protections. Many card companies will assist you in disputing questionable purchase transactions, for example, and in receiving refunds for products that do not perform as promised. Of course carrying plastic in the form of a credit card instead of cash also gives you the peace of mind and security of knowing that if your wallet is lost or stolen you won’t lose cash – and may not suffer any financial loss at all. Just notify your card company and they can send you a new card ASAP so that your financial life can get back to normal and go on without unwanted disruption and worry.