Many people today, especially young people, do not understand how a credit card works. Some think it is foolish to have one and believe only people who don’t know how to manage money use them and pay excessive interest rates on balances, while others know that they are good for building credit but do not understand the mechanics involved. After reading this, you should have a better understanding of why credit cards are so valuable and why you should have one in your wallet.
What does a credit card do for me?
Increase Credit Score
First and foremost, a credit card helps you build up your credit score if used responsibly. This means paying it off in full every statement period, which is most commonly a month, and not carrying a balance. . If you pay your card off in full every period, this is the easiest way to build up your credit score.
Perks and Rewards
The next thing a credit card can do for you is pay you to use it! Some basic cards may not provide large amounts of cashback or any at all (these are normally for people with bad credit), however, most will provide at least 1% cashback on spending, with many also providing cashback for certain spend categories like groceries, gas, transportation, flights, dining, and more.
You may think “1%, what am I going to do with that?”. Well, with many cards providing higher return such as the American Express Blue Cash Everyday, which gives you 3% cashback on groceries. Suppose you spend $500 on groceries every month with your Amex card; you will get $15 back, totaling $180 back annually all for spending on and paying off your credit card. This could be used for a nice date night with your significant other or a clothing haul at your favorite store.
Some cards also earn rewards points instead of cashback and can be redeemed for travel bookings like flights, hotels, and rental cars, allowing you travel for free if you have enough points!
Continuing with the travel theme, some higher-end cards feature perks that are not earned through cashback or points but rather an annual fee. Some cards will give you access to airports lounges or status at hotels, and for some people, these are very valuable. Additionally, some cards have no foreign transaction fees, so if you are traveling internationally, this can save you 3% in fees on every dollar you spend!
Track Spending
Many credit cards have a basic way to track your spending by month, quarter, and year and also show you where you’re spending money. This is very helpful for someone with minimal financial knowledge as many bank accounts do not offer features like this on your debit card.
Wrapping Up
Although this is a brief overview of what a credit card can do for you, I cannot stress enough the importance of building credit through good habits with credit cards that allow you to earn something on your spending. It is an easy way to build credit and earn something from your everyday spending.
See some of the articles below if you want to learn more!
What is a credit Card?
https://www.nerdwallet.com/article/credit-cards/what-is-a-credit-card
What Factors Affect Your Credit Score?
https://www.nerdwallet.com/article/finance/what-makes-up-credit-score
How to Pick the Right Credit Card for You.
What are Credit Card Points and How do they Work?
https://wallethub.com/edu/cc/how-do-credit-card-points-work/50906