Advantages of credit cards

With the current credit crisis looming along with record credit card debt by American consumers, it’s tempting to write off credit cards completely. There is little doubt that carrying high credit card balances can quickly turn into a complete financial disaster, but responsible use of credit cards can carry many advantages. Here are some of the main advantages that credit card holders enjoy:

CREDIT CARDS CARRY A LEVEL OF CONSUMER PROTECTION THAT IS NOT OFFERED ON DEBIT CARDS

Many consumers are under the false impression that the same level of consumer protection exists on both credit and debit cards. This is not true, and in many situations the consequences can be devistating. Consider these facts:

* Debit card purchases can typically only be challenged if the card or card number was used without permission. In other words, if a debit card is stolen, the charge can typically be challenged and removed, pending an investigation. However, if the cardholder did authorize the purchase but was overchaged, the bank issuing the debit card will typically not remove the charge. At this point, the dispute is between the cardholder and the merchant, which may require a significant amount of time to resolve (if it can be resolved at all). A credit card company will typically remove a charge and negotiate with the merchant directly. Although there’s no guarantee that the dispute will be resolved in the cardholder’s favor, the card issuer does most of the work to resolve the dispute.

* A credit card is a line of credit and not actual cash. If a fraudulent transaction occurs on a credit card, a consumer has not actually been deprived of any real money. The only thing affected is the amount of available credit. If fraud occurs on a debit card, actual cash is removed from a bank account. If this happens to be the same account that the consumer’s mortgage, car payment and other household payments come from, the consequences can be many bounced checks and NSF fees. What would you rather deal with? An empty bank account or a credit card that’s over the limit?

* Credit card companies will sometimes offer additional protection if something is lost, stolen or damaged. The level of this protection varies from one card issuer to the next, so ask for details.

CREDIT CARDS ARE REQUIRED FOR MANY TRANSACTIONS

Car rentals, airline reservations, hotel room reservations and most online purchases are just some of the many examples. Although a debit card can be used for many of these transactions, the level of consumer protection is limited, as stated above. Consumers put themselves at greater risk by using debit cards for these transactions.

CREDIT CARDS HELP TO BUILD A SOLID CREDIT HISTORY

This is, perhaps, the best reason to have a credit card. With the current mortgage crisis only escalating, lenders are demanding higher interest rates for borrowers with lower credit scores and are raising the minimum credit score requirements for all types of mortgages. There are many ways to use credit cards in a responsible manner that maximizes the credit score. In addition to score requirements, most lenders require a borrower to have at least three accounts that are open and active on their credit report. Although they carry the Mastercard or Visa logo, debit cards do not help build a credit history and do not report to the three major credit bureaus.

SOME CREDIT CARDS CARRY SPECIAL BENEFITS AND BONUSES

IN addition to the benefits listed above, many credit card companies offer additional benefits, such as discounts on various products and services, points that can be used for airline miles, and special insurance and warranties for products.

And, of course, it wouldn’t be right to list the advantages of credit cards without also listing the disadvantages. The biggest disadvantage is the financial trap that many consumers fall into by using credit cards to live above their means. They simply provide an easy way to spend money that you don’t have. Also, credit card balances accrue with compound interest, so it’s never a good idea to carry a large balance on a credit card. Credit card companies have been equally as responsible as consumers for the overwhelming amount of debt that has accrued on the balance sheets of many American families, but it’s important to not miss the trees on account of the forest. The key is always RESPONSIBLE USE. If you can’t afford it, don’t buy it!

So what if you’ve had some credit problems in the past and can’t seem to get approved for a credit card? Consider applying for a SECURED CREDIT CARD. Secured credit cards can be obtained by almost anyone, regardless of past credit history. The only catch is they require a security deposit equal to the amount of the credit line. Simply put, if you want a secured credit card with a $500 credit limit, you’ll have to give the card issuer a $500 deposit. This deposit is not a fee; it’s credited as a savings deposit into an interest-bearing account. But you can’t withdraw the money as long as you keep the credit card (until the card issuer feels that a good payment history has been established, which is usually 12-24 months). If the money is needed prior to this time, the card issuer will return the money and close the credit card account, provided the full balance on the credit card has been paid.

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