Credit Cards for Everyday Spending

If you don’t tend to use credit cards often, you might wonder why anybody would pay for everything with credit. After all, debit cards can do the job just fine, right? There are actually a lot of reasons why you might choose credit over debit or cash. Let’s go over some of the benefits of choosing credit and how to responsibly use credit cards.

The Benefits of Credit Cards

Credit cards have many unique advantages compared to spending with debit cards or cash. Benefits of credit cards include:

• Chargebacks. Let’s say an item you ordered is never delivered or you’re charged for a service you never requested. If the merchant refuses to give you a refund, you can dispute the charge with your credit card company.* They will work with the merchant to resolve the issue, and if the dispute is legitimate, the charge will be waived.

*Debit card charges may also be disputed.

• No complications due to holds. When you use a card at a gas station pump or hotel, a hold is usually placed on your account for a set amount of money, which can be more than double what you plan to pay. This hold makes sure your account has enough money to fund the purchase and is reversed once the payment is finished processing. But if you use a debit card, a pricy hold can temporarily make it seem like your checking account is low on funds. While there may be a hold on your credit limit, credit cards don’t charge to your checking account.
• You can build credit. Using a debit card has no impact on your credit score or credit report. But a credit card can actually help you build a credit history – if you use it responsibly. When you make on-time payments on your credit card balance, you’re showing that you can responsibly use credit and are a trustworthy borrower. As your history of on-time payments continues, you can expect your credit score and credit report to gradually improve.
• Rewards. Debit cards that have rewards are fairly rare, and they usually can’t compare to the rewards offered by credit cards. As you use your credit card to make purchases, you can rack up benefits like cashback, airline miles, or points.

How to Use a Credit Card Wisely

Credit cards are powerful and useful tools, but misusing them can lead to debt and potentially damage your credit history. Follow these tips to avoid pitfalls when using credit cards:

• Stay below your credit limit. Your credit utilization ratio is a ratio of how much you owe compared to your total credit limits across your credit cards. Keeping a low ratio is better for your credit score, so aim for a ratio of about 30% or less.
• Make payments on time. Being late on your monthly payments can harm your credit score and result in late fees.
• Pay your bill in full. Any balance that remains on your card past the statement’s due date will incur interest charges.
• Buy only what you can afford. Treat your credit card as if it’s a debit card and you’ll have little trouble paying your bill each month.
• Learn more about how to use credit cards responsibly.

This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.