Credit cards are a convenient staple in a majority of households to purchase goods and services, whether shopping online or in real-time. These financial tools offer the potential for earning rewards with the purchases depending on the sort of card obtained. Some include cash back, miles, or points.
One of the primary reasons for using credit is to establish a favorable credit profile with usage based on discipline and responsibility. Erratic spending can lead to debt accrual, mounting interest with late fees added, and developing a less-than-favorable credit history.
But these “small loans” are subject to interest charged only if the balance is not paid entirely within the billing cycle. When paid promptly and consistently, the credit history will reflect this, allowing lifestyle perks for the client.
A kredittkort(’s) (credit card), see kreittcort.no to learn details, balance limit is set by the bank when an application is approved. Approval is based on numerous variables, including current credit profile, financial circumstances, and debt.
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Why Should You Use A Credit Card
Many households incorporate credit card use as part of the household’s financial management. Some experts debate whether people should avoid the debt or if there are exceptional benefits when handled with discipline and responsibility.
With prompt, consistent payments, you can establish an excellent credit profile, for instance. Plus, many cards have exceptional reward programs.
The suggestion is to consider the tool the same way a debit card would be used, spending only the amount you have available. That means not having a balance carried forward to the following month, only spending what you can readily afford to pay in full to avoid the interest accrual.
Why then get a credit card instead of merely using cash or a debit card? A few reasons stand out.
Establishing or building a credit history is feasible with a credit card
People nowadays strive to establish credit primarily because it’s the cornerstone for many critical decisions that form livelihood. That can be whether an educator approves a student to a college, an employer hires a candidate, a lender agrees to a mortgage or auto loan, and on.
The three credit bureaus keep each individual’s profile, including the history and score, with details on any credit card or loan ever applied for, currently active or otherwise closed. These facts create the score, essentially the rating for your overall history.
When credit is used with discipline and responsibility, the profile shows positivity, and the score goes up. Paying debt promptly and consistently would be one way to achieve this. Also, keeping multiple accounts, having aged accounts, and avoiding excessive debt.
The credit score will go down by paying after the due date or defaulting on payments, and the profile will show these adverse reports. Also, if you don’t have credit, there’s no history of responsibility for anyone to make character decisions from.
When looking for a resource regarding your payment history to assign an interest rate for a home or auto loan, a lender needs to be able to reference a credit profile with these details.
These are the only character references a landlord or employer will have when making final decisions.
If your credit profile is virtually nonexistent, in turn, giving you a less than favorable score, it can be exceptionally debilitating to your livelihood. A debit card does not affect a credit profile positively or negatively. Go here to find out if you need a credit card.
A credit card can ensure personal bank account protection
Credit cards do not correlate with your personal banking account, plus the issuers provide exceptional fraud protection for optimum safety. A debit card directly connects with a private checking account.
Regardless of whether a transaction deems debit or credit when using a debit card, the funds will transfer from the primary checking account to the merchant’s account, similarly to an “electronic check.”
In the case when a debit card is stolen and funds are withdrawn or excessive purchases are made, the cash is lost with no chance for recovery. This can happen whether a thief steals the physical card or merely has access to the details. The funds will disappear from the bank.
If your bank does offer basic protection against fraud which many do, it can be a lengthy process to recover the funds after an extensive investigation.
These are not fears with using a credit card since the financial solution does not correlate with your bank account and doesn’t use its funds until you make a specific payment for your monthly installment.
In the case when someone were to steal your credit card to make fraudulent purchases, the issuer can flag the expenses to prevent these from being added to your bill. Issuers will put a freeze on stolen cards so no further purchases or withdrawals can be made, and an investigation will ensue.
Some credit cards come with generous rewards
Banks have restrictions on the fees they are permitted to retrieve from merchants for debit card transactions due to an amendment to the consumer protection act in 2010.
Before that, debit cards at one point offered rewards. Nowadays, retail usage is not as profitable for issuers giving them a minimal desire to incentivize the cards.
Banks find credit cards profitable still, continuing to invest strongly by providing consumers access to “a slice of the fees” that merchants receive with reward programs. The issuers incentivize consumers using travel, dining, cashback, and on.
The priority is to ensure that you pay off your balance instead of accruing mounds of interest since this will counteract the benefits of any rewards you might receive.
One takeaway to pay attention to is the importance of having a detailed credit profile with the credit bureaus. Not having credit can be overall detrimental to a person’s livelihood. Many vital decisions are based on credit history and score; it’s no longer a suggestion but a requirement to establish and grow these to be exemplary.