Once you realize it's all about how you use them, credit cards are no longer the enemy - they can actually help in 3 ways
Crystal Cox/Business Insider
- When you pay off your balance in full each month and only spend as much as you can afford to pay off, credit cards can actually do good rather than harm.
- Using a credit card responsibly can improve your credit score by positively impacting your credit utilization and payment history.
- Beyond that, credit cards can get you perks like intro APR offers to pay off large purchases without interest, plus welcome bonuses of cash back or rewards points.
- Be honest with yourself: If you don't think you're in a place to use a credit card responsibly, you shouldn't open an account. Any rewards and perks you'll earn are worth far less than the interest you'll be charged for overspending.
- See Business Insider's list of the best rewards credit cards »
With credit card debt on the rise and many millennials sticking to debit cards, it might seem logical to conclude that credit cards are bad. But while the dangers of credit card debt and overspending are very real, labeling all credit cards as bad overlooks one major truth: It's all about how you use them.
By not charging more than you can afford to your card and paying your balance in full each month, you can reap lots of rewards from using credit cards. Not only can using credit cards responsibly help you improve your credit, but it can also earn you travel rewards and cash back.
3 benefits of responsible credit card use
Credit cards offer many types of rewards, and responsibly managing a credit card account or two can even help raise your credit score. Of course, that's only if you use them responsibly - by paying off your balance in full each month and only charging what you can afford to spend. Basically, treat your credit card like a debit card, and don't use it as an excuse to overspend.
Credit cards can raise your credit score
If you pay them off every month and avoid carrying a balance, credit cards can help raise your credit score. Payment history and credit utilization are two of the biggest factors that make up your credit score, so making on-time payments and responsibly managing a credit line will help, rather than hinder, your credit. This is one reason that parents might choose to add a child as an authorized user on their account - doing so helps their child build credit, as their parents' credit card account activity will be reflected in their credit score.
Intro APR offers can help you finance large purchases and pay down debt
Using a card with an introductory interest rate offer could help you pay down your credit card debt and/or finance a purchase that you'd otherwise have to get a personal loan for. Also keep in mind balance transfer credit cards, which let you consolidate debt and pay it off with an intro APR offer. Remember that the introductory interest rate is temporary; you'll need to pay the balance in full by the time the offer is up to avoid paying a high interest rate.
You can enjoy travel rewards or cash back
Using a credit card can earn you rewards that you wouldn't be able to enjoy with a debit card. From award flights to cash back you can use for anything, rewards cards can give you lots of value, sometimes even without an annual fee.
Credit cards aren't bad, but they may not be right for you
Credit cards aren't inherently bad, but if you don't think you'll be able to use them responsibly, they're probably not right for you right now. If you're worried that you'll overspend and you currently have credit card debt, your primary goal should be establishing good financial habits and paying down your outstanding balances.
Only open a new credit card if it will help you work toward these goals, rather than add to your problems. Even if you're tempted to earn points and miles, remember that the rewards you earn pale in comparison to the interest you'll be charged if you don't pay your balance in full.
Find the right credit card for you
If you've decided that a credit card is the right decision for you, the next step is to find the perfect option for your goals.
Here are a few of our favorites, from no-annual-fee cards to popular travel rewards cards and premium credit cards:
- Chase Freedom Unlimited: This no-annual-fee card earns 1.5% cash back on all purchases. It also offers a relatively long 15-month 0% introductory APR on purchases and balance transfers. Just remember that the APR increases to 16.49% to 25.24% when that period is up.
- Chase Sapphire Preferred Card: Rewards add up quickly with 2 points per dollar on travel and dining purchases, and it has a reasonable $95 annual fee.
- The Platinum Card® from American Express: The $550 annual fee is steep, but the Amex Platinum can score frequent travelers 5 points per dollar on airfare (booked directly through the airline or through Amex Travel), and it comes with a long list of luxury travel benefits.
- Capital One® Venture® Rewards Credit Card: The card offers up to a $100 credit for Global Entry or TSA PreCheck, and you can use miles to "erase" travel spending on your account. There's a $95 annual fee that's waived the first year.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.
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