One of the greatest benefits of owning a credit card is it offers you protection. Many people do not realize that you get 100 times more protection when using a credit card, then you would with a debit card. Here's an example, if you purchase a $2,000 laptop online using your credit card and if it didn't arrive, your card provider will more than likely refund your money. Credit card owners are also provided protection against fraud and identity fraud.
Many people get a credit card simply for the perks that come with it. It allows you to not only build your credit, but it also gives you the ability to earn points while you spend. Many credit cards will also offer reward points, which you can use for groceries, hotel fare, and even purchasing gas. They might also offer some sort of sign up bonus, which could include, bonus points or reduced interest rates.
- Less Cash on Hand
There is nothing I hate more than walking around the city with a large amount of cash in my pocket because as a New Yorker, one of my biggest fears is being robbed. One of the reasons I got a credit card was to limit the amount of cash I carry. We live in a technologically driven society that only uses cash when it's absolutely necessary. Today's society is becoming more reliant on using credit cards or digital wallets, such as PayPal, Apple Pay, and Chase Pay. Another advantage of owning a credit card is it works as a universal form of currency, which can be extremely useful when traveling to other countries.
- Build Your Credit
When I purchased my first credit card, I'll be the first to admit that my credit wasn't the best. Owning a credit card will help improve your credit rating as long as you remember to pay your balance in full and limit you're spending.
What Affects my Credit Score?
First, you should understand what actually affects your credit score. Understanding your score can be a bit complicated because many people fail to realize that most of the financial transactions you make, could potentially hurt your score.
- Too Many Credit Checks
Every time you apply for a loan, credit card, or apartment application will require a hard inquiry credit check, but what many people fail to realize is these inquiries can affect your score up to 10%. Before you allow a credit check to be performed, you should always do plenty of research and only do so if it's absolutely necessary. This will avoid unnecessary credit checks and lessen the risk of potentially damaging your score.
- Late or Missed Payments
Late or missed payments can drastically affect your overall score, which can account for 35% of your total score. Missed or Late payments can definitely hurt your credibility; it will also make it a lot harder to secure a loan. If you're a few days late on making a payment, you'll be charged a late fee, but if you're continuously late or if you miss the due date completely, your interest rates will increase. It's important to always pay your creditors on time or it could potentially reset your interest rate to a default, which would result in a significantly higher interest rate, often as high as 29%. However, if you're more than 30 days late, the credit bureaus are usually notified, which can stay on your credit report up to 7 years.
Bankruptcy is a word that creditors never want to hear. Bankruptcy is the first thing they notice on your credit report, which can severely damage a score. Liens and judgments can also hurt your score, but usually, these disputes can be easily settled without dramatically impacting your score. A chapter 7 bankruptcy will show up on your credit report for about 6 years, but a Chapter 13 bankruptcy will usually remain on your credit report for 10 years. Your credit score will more than likely eventually recover, but many lenders may still be hesitant to work with you. Contrary to popular belief, filing for bankruptcy can actually help your credit. Often times, allowing your debts to go into collections will do more damage to your score, than filing bankruptcy.