April 21, 2007, 8:11 am

Why should you want a credit card?

by: The Financial Blogger    Category: Personal Finance
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Every body’s after you; your bank, your ex-bank and the credit union that just opened three blocks away. Everywhere you go, you’ll see credit cards offers. Low transfer rate, no applications declined, competitive cash back and rewards system. They will even give you freebies such as T-shirts, caps, pens. Anything to make you sign this credit cards application. Why should you do it? Believe it or not, there are some reasons why you should want a credit card.

The first one is to establish your credit history. There is nothing like credit cards to bring your beacon score to a higher level. The financial institutions are reporting credit cards to the credit agencies on a monthly basis. Therefore, credit cards are a live example of your credit behaviour. Are you paying on time? Are you maxing out your cards? Are you applying for ten of them at the same time? All these questions can be answer with a simple look at your credit report. Use your credit cards on a regular basis without getting close to their limit. In the best case scenario, pay them off at the end of the month (you won’t have to pay interest then). If you are a student and have no credit history, student credit cards are almost your only way to build a strong credit history.

Cash back, air mileage and rewards. These are the magic words. By paying your regular expenses with your credit cards, you’re getting something in return. If you follow your budget, you won’t spend more than you should. However, you will earn many points and be able to treat yourself. Cash back will automatically put more money in your pockets while air mileage will transport you and your family to Disney World. In other words, you will keep you living the way you do, but you will earn a little extra at the end. After I paid for my wedding with my credit cards, I had enough point to go south with my wife and it cost me nothing! When I came back, I’ll the gifts I received from my family paid for my credit card bills. Life isn’t just beautiful?

Save fees and track your expenses. It became quite easy to use your card everywhere. Companies now accept credit card online for most purchases. While paying cash forces you to keep a considerable amount of money in your wallet at anytime, paying with your debit card will incur transaction fee in your bank account. Credit cards companies are not charging you for using their cards. As they want you to use your card, there are no transaction fees. How do they make money if you pay your credit card bill at the end of the month? Simple. They charge the store where you shop at. Stores are charged a small percentage of your purchase on every credit card transaction. In addition to not pay fees, you will be able to track your expenses. Your monthly report should help you out pinpointing your must expenses categories and come up with a budget to bring them down.

When they are well managed, credit cards can help you out building a strong credit history, benefit from rewards and save transaction fees. Credit cards are definitely a good personal finance tool when used the right way.

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