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Should I Use a Credit Card – Aren’t They Evil?

Credit cards have gotten a bad reputation – one they sometimes deserve!  They can be dangerous, especially for anyone who worries about having the self-discipline to use them correctly.  Maxing out multiple credit cards, missing monthly payments, or only making the minimum payment and racking up loads of interest are all possible consequences of poor credit card use.  For some people, using a credit card just isn’t wise due to the temptation to spend.  In the right circumstances, though, credit cards are actually very useful tools for building a financial foundation!  Here are three benefits that credit cards can provide for their users:

Protection: It is easier to avoid or catch fraud when using a credit card.  When cash is stolen from your wallet or money taken from your checking account, that money is gone immediately.  If your debit card is stolen, you risk bouncing checks or missing bill payments that are automatically set up for payment from your bank account.  Not only will this be a hassle, but late or missed payments can negatively affect your credit score.  With a credit card, you can quickly freeze your card and notify the credit card company of fraudulent purchases with a phone call.  

Building Credit: If you have no credit history or want to improve your credit score, a credit card could be the answer!  When used responsibly, credit cards can improve the age of your credit, the number of payments made on-time, and the percentage of credit used compared to available credit – all of which improve your credit score.  That score is helpful when it’s time to rent an apartment, buy a house, or take out a personal loan.  College students can start building their credit early by getting a student credit card (maybe one with a low maximum to avoid over-spending).

Rewards: There are two types of rewards that credit cards provide: sign-on bonuses and ongoing rewards programs.  Many cards provide a sign-on bonus when you are originally approved for the card, often a lump sum of miles, points, or cash.  Then the card will have a system for ongoing rewards such as “five points for every dollar spent on gas.”  Each card has its own rewards system, which can save you a lot of money in the long run!

When used properly, credit cards can be an invaluable tool for saving money and laying the groundwork for future financial endeavors.  It’s important to research a credit card thoroughly before applying.  Look out for fees (especially annual fees just for having the card) and look for the card that will be most advantageous to your lifestyle.   Most importantly, examine yourself and your situation to determine whether opening a credit card is the right decision for you.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.
Rebekah L. Nau, CFP®
Assistant Director of Financial Planning

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Hefren-Tillotson Inc. is a leading diversified financial services firm providing investment and retirement plan management and comprehensive, financial planning through MASTERPLAN® for individuals and businesses. The firm’s wealth management services are administered by Certified Financial Planner (CFP) professionals, Chartered Financial Analyst (CFA) Charter holders, attorneys, Chartered Life Underwriters, and CPA/PFS’s. Hefren-Tillotson offers corporate services including 401(k) retirement planning, executive financial counseling, fiduciary reviews and workplace financial planning seminars. Founded in 1948, the firm is headquartered in Pittsburgh and has offices located in Pittsburgh, Butler, Greensburg, North Hills, and South Hills.