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Do You Need a Credit Card?

Credit cards come with plenty of benefits, but excessive spending can lead to debt and other consequences.

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Do you absolutely need a credit card? While you’d be fine going through life paying cash or using a debit card for your transactions, a credit card provides a number of significant advantages.

Credit cards offer rewards for everyday purchases like gas and groceries while helping to build your credit score. They also give you access to emergency funds, keep your money safe from fraud and offer protections to make shopping and traveling more secure. But they aren’t without risk.

Should you get a credit card?

When you turn 18, applying for a credit card can unlock a long list of benefits, which include helping you establish credit, shopping more securely and providing cash back for purchases.

However, credit cards come with potential dangers. Credit card debt accumulates quickly if you’re not disciplined in your spending. Carrying a balance from month to month will accrue interest, and interest charges can add up quickly. Once you have credit card debt, it’s difficult to get rid of it.

Missing a credit card payment can also be a costly mistake. Not only will it result in late fees, but it will damage your credit score and likely increase your credit card’s annual percentage rate, or APR, with a much higher penalty rate.

That said, using your card responsibly -- meaning paying on time and not overspending -- will help you avoid problems.

How does a credit card help you build credit?

When you pay your credit card bill on time, you’ll start to build a positive credit history, which then improves your credit score. Your credit card issuer will report your card activity to the three credit bureaus that determine your credit score.

Keeping your credit score in good shape is important. Lenders review your score to evaluate how responsible you are as a borrower. Your credit score determines the terms you get on credit products like personal loans, auto loans and mortgages. Using a credit card conscientiously is the easiest way to improve your credit.

The amount of total credit available to you and the length of time your credit account has been open will also affect your score. Having older credit accounts on your credit report will also contribute to better credit scores. Credit utilization, the amount of total credit you’re using at one time, is also a factor. Maintaining a lower credit utilization (under 30%) will keep your credit score in a better range.

Can you build credit without a credit card account?

There are ways to build credit without a credit card. Anytime you make an on-time payment on a loan, whether it’s your mortgage, student loans or a personal loan, it’ll go toward building a good credit history. You can also use a credit-builder loan to help improve your credit score.

Credit-builder loans work like backward personal loans. Instead of getting the funds upfront and paying the loan down, you’ll first pay the loan down and then get access to the borrowed funds.

Pros of a credit card

If used with caution, the benefits of a credit card can outweigh the risks. Some benefits include:

  • Building credit. Credit cards can improve your credit so that other financial products will have better terms like lower interest rates and monthly payments.
  • Earn rewards for your spending. Credit cards like rewards credit cards put money back in your pocket for necessary expenses like gas and groceries.
  • Access emergency funds. Having access to a credit line can help if you find yourself in a tight financial spot.
  • Shop more securely. Credit cards have built-in security features that help prevent your information from being stolen. Some offer virtual credit cards to make online shopping more secure.
  • Gain card benefits. Credit cards offer benefits like shopping protections that cover your new purchase against damage and theft or extend a manufacturer’s warranty. Travel credit cards include protections like travel insurance.

Cons of using a credit card

Credit cards also come with a fair amount of risk, including:

  • Credit card debt. Debt can grow quickly if you overspend, and it can be hard to get out of. Your credit card balance will accrue interest if you don’t pay it off by the due date, and interest charges can add up quickly.
  • Damaged credit. If you miss a monthly payment, it could stay on your credit reports for up to seven years as well as drop your credit score.
  • Credit card fees. Some credit cards include annual fees, which will cut into their rewards. You’ll need to make sure they fit into your budget.
  • Overspending. Because they’re convenient to use and often offer rewards, credit cards could entice you into buying things you normally wouldn’t purchase.

Credit cards vs. debit cards

Credit cards and debit cards are used in a similar way, but the money comes from a different place.

A debit card is linked to your bank account. When you buy something, it’s funded by your own money. It’s often easier to avoid overspending with a debit card since you can only spend what’s in your bank account.

Credit cards are funded by a line of credit you borrow from the lender. You’re responsible for paying it back. When you don’t, the balance on your card will accrue interest.

Credit cards come with benefits and rewards, and though some debit cards may earn a low return for purchases, most don’t. Credit cards are generally more secure than debit cards due to built-in fraud protections and other security features.

How to apply for a credit card

Applying for a credit card is a simple process, but you’ll first need to choose the credit card that best fits your budget and needs. Once you’ve done that, follow these steps:

  • Find a card that matches your budget, and apply online. You’ll need to provide your income, monthly rent and mortgage payments, Social Security number, phone number, address and other types of identifying information. Once you apply, you should hear back instantly.
  • You’ll receive your new credit card within five to seven business days. Once you have it, review the terms and conditions before making a purchase.
  • Pay your bill on time and in full, and try to avoid revolving a balance from month to month. That will help build your credit and avoid accruing interest charges.

The bottom line

Credit cards can provide some worthwhile benefits so long as they’re used carefully. They can help keep your information secure, insure your new purchases, build credit, finance large purchases and provide rewards for purchases. However, you’ll need to be disciplined. Don’t get enticed into overspending for the sake of rewards or because you have access to a credit limit. Try to pay off your entire monthly statement balance to avoid expensive interest charges.

FAQs

While you don’t necessarily need one, a credit card will make a lot of things in your financial life easier. It can help build credit, provide rewards for regular expenses and make shopping more safe. So long as you can budget and pay off your statement balance each month, there’s no reason not to get one.

Even if you no longer need or benefit from a credit card, it’s better to tuck it away instead of canceling the account, unless it has an annual fee that cuts into your budget. Canceling a credit card could damage your credit score. The age of credit accounts as well as how much credit you’re using -- two factors that contribute to your FICO score -- could be impacted.

Editors’ note: An earlier version of this article was assisted by an AI engine. This version has been substantially updated by a staff writer.

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

Evan Zimmer has been writing about finance for years. After graduating with a journalism degree from SUNY Oswego, he wrote credit card content for Credit Card Insider (now Money Tips) before moving to ZDNET Finance to cover credit card, banking and blockchain news. He currently works with CNET Money to bring readers the most accurate and up-to-date financial information. Otherwise, you can find him reading, rock climbing, snowboarding and enjoying the outdoors.
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