- The first group says to never use credit cards because you’ll only get yourself into debt.
- The second group is adamant about credit card use and takes advantage of every reward possible.
I prefer to take a non-extreme stance and instead promote some common sense credit card usage. Remember, your financial life is about balance.
If you’re the type of person who spends uncontrollably and would not be able to go to the store without maxing out your card, then by all means, don’t get a credit card. However, if you’re responsible with your money, know how to budget, and would only charge what you could pay off each and every month then you can enjoy the perks that come with owning a credit card.
Here are the five biggest credit card perks that are totally worthwhile.
Credit Cards Help You Build Credit
The number one perk of responsibly using credit cards is that they will help you build credit. When you use a credit card intelligently, by paying your balance in full and making your payments on time, month in and month out, you’ll start to build your credit.
If you currently have no credit getting a credit card and using it regularly will help you build your credit score.
You can see in the graph below exactly what is taken into consideration when factoring your FICO® Credit Score.
Payment history, the amount you owe, and length of credit history are the top factors calculated into your FICO® Credit Score.
If you’re starting from zero credit doing the following can help you build your credit quicker:
- Open a credit card
- Pay your bill in full each month
- Always pay on time
- Keep your debt to income ratio low.
Cash Back For Regular Spending
Another huge perk of credit cards is earning cash back for your regular purchases. Of course, earning cash back highly depends on the card you have.
The Discover it® card is one great option. With this card you can earn up to 5% cash back on rotating categories and new Discover it cardmembers are getting Double Cashback Bonus for the first year with NO LIMIT when they apply for a card from now through September. Those are some rewards that are hard to beat!
If you’re a student you can get a Discover it® Student Card and earn $20 cash back each year, for five years, if you keep your GPA at 3.0 or higher.
I’d highly recommend that you use your credit card to pay for a couple of expenses each month. (For example, you could have a couple of bills automatically paid via your credit card or you could elect to use your card for an expense such as gas.) And then let your cash back rewards naturally accrue. At the end of the year cash out all of your rewards and put them toward savings.
Remember, using a cash back credit card is one of the main ways that can help you save an extra $500 per month.
Also, if you find that you can easily pay back your balance each month and that using your card is actually helping you stay on budget then you can slowly pay more expenses with your card and rack up more rewards.
FICO® Credit Score for free
We’ve already clarified that building credit is important for your financial life. Monitoring your credit score goes hand in hand with building your credit.
Keep in mind that every credit card has its own set of features. However, one of the reasons we love the Discover it Card is that you get your FICO® Credit Score for free on your monthly statement each month, and can track up to a year of scores!
This is an invaluable perk and can save you a ton of money as you would pay upwards of $300 per year if you purchased FICO® monitoring separately.
Another great benefit of using credit cards to pay for expenses is the fraud security that comes with your card.
If fraudulent charges are put on your debit card you’re out of that cash until the bank straightens everything out. This can take much longer than you want it to. And what happens when your cash is drained from your bank account and rent is due the next day?
With a credit card you’re covered. Cards like the Discover it even have a “Freeze” switch on their mobile app. This way if you ever lose your card or notice unauthorized purchases on your account you can literally turn your card off with the push of a button. It’s a pretty fantastic feature!
You’re also never responsible for unauthorized charges on your card. (And you won’t be out of all your cash if someone did fraudulently use your card.)
Easily Track Your Expenses
While cash can be a great tool when it comes to budgeting it’s really hard to track cash purchases.
When you use a credit card tracking your expenses is super easy since everything you’ve purchased will be in one convenient location.
The choice as to whether to use a credit card to track your expenses is a very personal one. If you’re great at budgeting and know that you’ll easily be able to pay off your credit card bill in full each and every month, then this could be a fantastic option for you.
If you think that using a credit card will cause you to subconsciously spend more than normal and you’re afraid you won’t be able to pay the balance in full, then by all means, stick with cash.
Your Credit Card Can Be a Valuable Tool
You need to change the way you think about credit cards. Credit cards are not just for rewards and not everyone who owns a credit card gets into agonizing debt.
Credit cards are a tool. They can help you build credit, save money, and stay up to date with important aspects of your personal financial life.
Use your credit cards wisely and you, too, can take advantage of all the perks with very minimal effort.
This article was sponsored by Discover but all opinions are my own.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.