Credit cards can be dangerous. You don’t have to look far for evidence as Americans collectively hold $858 billion in credit card debt. When debt strikes, it’s easy to say “stop using credit cards” to solve the problem, but that might not be the best advice for every person.
As much damage as credit cards can cause, they’re still an important part how Americans spend and borrow money. While they’re a necessary evil for some, they can be a valuable financial tool for those who manage their use perfectly.
Giving up credit cards may be an extreme solution, and it might cause problems for you down the line. Before you stop using credit cards, consider these benefits that you’ll be giving up.
Helps your credit score
The number one reason to keep using credit cards is that using them properly helps improve your credit score.
Credit cards are tied to every aspect of how a credit score is calculated. Credit card bills are paid every month and amounts owed on credit cards are constantly reported to credit bureaus. Because it’s possible to have many credit cards open at once, they may make up a majority of your credit history length.
With all of these factors, it’s hard to imagine coming close to a perfect credit score without including credit cards in the equation.
Having a great credit score is a huge benefit for loans, and the higher the score, the lower the interest rates. But if you stop using credit cards, you may lose out on building the foundation for an excellent credit score. Worse, you could be denied a loan altogether if you don’t have sufficient credit history to qualify.
For those who use their credit cards perfectly, rewards can be a huge bonus. These rewards often don’t cost anything extra, so using your credit card be a way to actually earn money.
There are rewards options for everyone these days. Frequent flyers can earn miles for free flights or redeem their points for other rewards. Cash back is popular now, too, with some cards offering 5% back on purchases that can net a few hundred dollars a year.
Closed or inactive accounts can hurt credit
Keeping credit card accounts open, active, and in good standing usually means you’re working towards a better credit score. But deciding to close accounts or stop using credit cards can have negative affects.
When you close credit card accounts, you often decrease the credit available to you. When this happens, you may increase your credit utilization rate, which can lower your credit score if the rate is too high.
Closing credit card accounts can also affect the length of your history in the long-term when closed accounts drop off your report.
Even if you decide to keep your accounts open, card issuers may still chose to close your inactive accounts. This can happen without warning, and the consequences of this are the same as if you had closed your account yourself.
Backup for emergencies
It’s hard to recommend credit cards for emergencies, and I’d never suggest anyone go into credit card debt whenever possible. However, sometimes choices are few in emergencies, and while using credit cards may be a bad option, other ways to get money are worse.
While cash is best, credit cards still come out ahead of payday loans or other sky-high interest products that are almost never recommended. Plus, those with excellent credit can qualify for zero-percent APR credit card offers that will let them pay off debt from emergencies with no interest charges.
Easier to track spending
If you’re using the right tools, tracking your spending with credit cards can be much easier compared to cash.
Offers consumer protections
The consumer protections that credit cards offer can be quite valuable. While we might not use these features often, having them in place for certain situations can be a big help.
One protection is the ability to dispute charges when there’s a problem with a retailer or service provider. By using credit, the chances of having money returned is often greater than if cash was used.
Other protections include coverage for loss or damage of a purchase, extended warranties, and travel and rental car insurance. These benefits are often included at no cost and cardholders don’t have to do a thing until these protections are needed.
More convenient than cash
The reason many use credit cards to begin with instead of cash is that they’re convenient. You don’t have to stop at an ATM (and potentially pay fees) then carry around cash, which could be lost or stolen.
With credit cards, you just pay the bill once a month. As long as you’re responsible, credit cards can be the easiest way to spend.