Many of us use credit cards simply because it’s more convenient than carrying and using cash, especially for large purchases or splitting the restaurant bill. Rewards provide an extra incentive for many cardholders, too.
In some cases, credit cards go beyond basic convenience and become a near necessity with clear advantages over using cash. Here are several situations where it pays carry and use credit instead of cash.
While cash-only travel can be done, credit cards will likely make your journey easier.
Renting a car and checking into a hotel are typically less of a hassle with credit cards. The reason: rental car agencies and hotels need some sort of protection in case you damage their property. Credit provides the easiest way for them to take a deposit without having to collect cash. If you’re using debit, you may be subject to a hold on your card, a credit check, needing to provide proof of round-trip travel, or other additional checks.
Credit cards can make covering expenses, like expensive meals, transportation costs, and lodging easier, especially with international travel. Carrying large amounts of cash can be risky due to loss or theft. A credit card that doesn’t charge foreign transactions fees can be a money-saver compared to paying fees to withdraw cash at the ATM.
Be careful not to finance your travel on a credit card as it could cost more than using cash.
2. Working to build credit
Credit cards are one of the best ways to build credit. Attempting to improve your credit without credit cards can be more difficult, especially if you don’t use credit to buy a car or house.
Credit bureaus are working to build more non-credit factors, like rent and utility payments, into credit score calculations. The new VantageScore 3.0 does this, although it’s still a less-commonly used score than FICO.
Credit cards factor into every component of FICO scores, including payment history and amounts owed, which account for more than half the average score. Responsibly using a credit card and making on-time payments can be one of the best tools for maintaining and improving your credit score.
3. Losing a wallet
Losing a wallet full of cash can be a big financial loss. It’s very possible you won’t recover this money.
With credit cards, the loss is minimal. Most users can just call up and ask for a new card. Fraudulent charges can typically be disputed and easily removed. While liability for unauthorized charges is capped at $50 by law on credit cards, many issuers waive all charges with zero-liability policies.
4. When other financing options are worse
In many cases, carrying a balance on credit cards isn’t a good idea. Unless you have a card with 0% introductory APR or can transfer a balance, you’ll pay expensive interest charges.
But let’s assume you need to pay for something, like a medical bill, on credit. You can do much worse than credit card interest. A title loan, payday loan, or other high-interest loan will likely charge interest at multiple times the rate of a credit card.
Not paying bills probably isn’t in your best interest, either. You’ll be hit with fees and interest, not to mention calls from debt collection agencies and dealing with a credit score hit.
In extreme situations, don’t be afraid to use credit. Have a plan to pay off balances as quickly as possible to eliminate interest charges.
In an ideal world, everyone would have an emergency fund that’s easily accessible. But according to Bankrate.com, 28% of Americans don’t have any money saved for emergencies. For those who do, tapping a bank account with this money isn’t always convenient.
When faced with emergencies, credit cards might be the best options to cover costs right away. They’re widely accepted and often provide a credit line large enough to cover many emergency situations.
6. Disputed transactions
Paying with cash offers almost no protection at all. If there’s a problem with your purchase and you’ve been ripped off, you may have trouble finding recourse.
Credit cards provide protection in this situation, usually automatically and for free. It’s as easy as disputing the transaction with your credit issuer and, once approved, getting the money credited back to your account.
7. Repairing credit
Just as with building a credit score, using credit cards responsibly may be an integral part to fixing your credit.
Many credit repair services just don’t work. Tactics they use to get negative information erased from your credit report or to start over with a new credit identity are ineffective at the least and illegal in some cases.
One of the best fixes: use credit cards responsibly. MyFICO warns that past problems aren’t easily fixed but does say making on-time payments consistently can give your score a boost. You don’t need to keep a balance on your credit card to help your credit score, which means you can make a small purchase each month and pay it off to keep credit card accounts in good standing.
8. Tracking tax deductions, business expenses, and more
Credit cards make tracking expenses and budgeting easier for many, especially when it comes to record keeping for tax-related spending.
Credit card statements automatically track transactions including businesses expenses, charitable deductions, and anything else in your budget. Budgeting software that pulls and categorizes these transactions automatically can make bookkeeping even easier.
9. Avoiding the cost of extended warranties
Consumer Reports calls store-bought extended warranties “notoriously bad deals” that serve as “cash cows” for retailers. They say products rarely break during the extended warranty coverage period, and when items do break, the repairs don’t cost much more than the warranty coverage cost.
Credit cards make turning down extended warranties an easier choice. Purchases are typically covered without having to enroll in any services, and this coverage extends the warranty for up to one year.