According to the April 2009 Nilson Report, 78 percent of American households--about 91.1 million--had one or more credit cards at the end of 2008. Although the use of credit cards carries some inherent risks, using them wisely can provide added security, convenience and financial accountability.
Convenience
The biggest advantage of using a credit card for many is the added convenience of not having to have cash on hand for purchases. People who are paid monthly or bi-monthly can use credit cards for purchases throughout the month, enabling them the convenience of purchasing and using items before the money is actually earned. The trouble comes when they spend more than they earn and don't pay off the balance each month.
In many instances, using a credit card saves time. With a quick swipe of the card, the consumer can get in and out of many stores and service locations, such as gas stations and post office locations that often require people to wait in line for service, more quickly than people who use cash or checks. Even airports now allow quick, efficient check-in at kiosks that scan credit cards for identification.
Some transactions are nearly impossible without a credit card. Reserving a rental car without a credit card poses a number of disadvantages. Usually a large sum of cash must be posted to account for incidental charges or late fees, sometimes tying up hundreds of dollars during the rental period. Additionally, many credit cards offer additional insurance for the renter that is not available when using cash or a debit card.
Security
Credit cards offer a measure of security that is not afforded by cash or even a debit card. First, credit cards are usually safer to carry than cash. If cash is stolen or lost, it's gone for good. However, if a credit card is lost or stolen, the owner may only lose a bit of sleep rather than potentially large sums of money. Under federal law, a credit cardholder is only liable for the first $50 of unauthorized transactions if the card is not reported stolen until after the transactions occur. If it is reported lost or stolen before unauthorized transactions occur, the cardholder is not held responsible for any charges. The Federal Trade Commission (FTC) states that the consumer's liability for unauthorized use of a debit card depends on how long it takes to report the theft or loss.
Second, it is virtually impossible to buy anything online without a credit card. Debit cards can be used for online purchases, but they don't offer the added protection that most credit cards do, mainly because the consumer's personal funds are immediately transferred to the merchant with a debit card. With a credit card, the issuing bank does not immediately transfer the funds to the merchant, and the cardholder has more sway if the merchandise is defective, an error occurs in the transaction or the merchandise or service is not received at all.
Last, purchases made using a bank-issued credit card are usually protected by the credit-card company. Some banks even offer extended warranties, rewards or other perks.
Financial Credibility
Establishing a credit history might be the most important positive reason for using credit cards. A consumer who uses credit wisely--paying off balances on time, staying within credit limits and limiting the amount of debt incurred--helps boost his credit score. A good credit score enables the consumer to get lower interest rates and to qualify for home and auto loans, and it may even help lower insurance rates.
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