Need a credit card – Yes or no

Decide whether you need a credit card or not

Before you continue reading, keep in mind that the need to have a credit card is explained having in mind that you are a financial responsible person. Meaning that you do not have the urge to spend money on unnecessary things, and make purchases of items you do not really need. Having a credit card could be considered a double-edged sword. This is in a sense that it can be beneficial for you, but on the other side it could drag you down even more in debt. You could end up paying high interest rate debt and the possibility to be caught by the vicious repayment circle if you have (most probably you will) more than one credit card. Thus, you should be careful when considering whether you need a credit card.

Having a credit card could be a very useful tool for your everyday life, as long as it is used correctly. The need for credit card is imposing the need to go through the ways that it could make your life easier. In addition, some issues are justifying the need for owning a credit card. Let’s look at some issues that should be taken into consideration when deciding whether you need a credit card or not.

Credit card offers security – minimizing the need for cash

When having a credit card, you do not need to have large amount of cash with you which is increasing your safety. Imagine you have a plan to purchase a more expensive item. Not having a credit card will force you to carry hundreds or thousands of dollars with you in cash. There is a possibility for couple of scenarios to happen. The first scenario is you go and make the purchase. Great. The second and third scenarios are not so great. Walking around with cash in your pockets could result in losing your money, your cash could fall out of your pockets, or you could forget your handbag or purse somewhere. The third scenario is that you could end up being mugged, if an immoral person notice that you carry a substantial amount of cash. Having a credit card with you could increase your safety because you will not be a target of criminal activities of a person desiring a fast cash. Even if you got mugged or lose your wallet (purse) or whatever, then you simply call the bank and the credit card is no longer valid. This is limiting your loss, which is highly important in times when every penny counts. In addition, if your credit card is stolen and used for (unauthorized) purchases, there is a possibility that the bank will reimburse certain portion (in some cases the entire amount) of the loss. According to the Federal Trade Commission your liability for unauthorized charges is up to $50. Meaning that you are could limit your maximum loss to $50 (off course there are certain conditions when this does not apply).

Need a credit card when travelling 

Another issue that should be considered when deciding on whether or not you need a credit card, is the traveling. Imagine traveling to other country, not having a credit card means that you need to carry cash with you. The amount of cash you will have with you should be enough to last for the entire trip. How much money you need to have on hand to pay for accommodation, evenings out, food and beverage, or car rental services? Moreover, having a credit card means that you do not need to worry about the currency. When traveling abroad you should be aware about the currency and the need to exchange your country’s currency for the local currency. This is not a complex process but it could be a time-consuming process if you can’t find an exchange bureau near you or the exchange bureau is closed. The credit card is eliminating the need for you to convert your money in the money of the country you are going to. You could pay with your credit card and the conversion from one currency to another is performed automatically (keep in mind though, that in some cases there is unfavorable exchange rate).

Moreover, nowadays, it is difficult to make any hotel reservations without a credit card. In cases where you could make a reservation without a credit card, you should bank wire the funds to the hotel (or send a check) in order to make a reservation. This could be a time-consuming task, and also an expensive task due to the fees.

The need to have cash for every day purchases 

Owning a credit card could also be beneficial for your everyday purchases. Meaning that there is no need to be constantly worried whether you have cash with you or not. Not owning a credit card, means that before going to the store you must first go to the bank and make a withdrawal so that you could pay for your supplies. In addition, you spend your cash, and again, you must run to the bank to withdraw additional cash to make a purchase. The credit card is eliminating the need to withdraw money, at least money for the purchases. You could go and make the purchase whenever you want, without the need to run to the bank and make withdrawals.

Possibility to utilize any additional benefits and rewards

Large number of banks and other institutions offer numerous rewards when taking and/or using a credit card. Thus, not having a credit card is excluding you from the possibility to enjoy these benefits. These rewards and benefits could be different, depending on the issuer of your credit card. The most common rewards include: cash-back on your purchases (groceries, gasoline, etc.), airline miles, gas points, discounts, access to concert, VIP treatment, and much more.

Credit card as an emergency fund 

If, for whatever reason, you are in a situation when you do not have an emergency fund, owning a credit card could offer some safety. Not having a credit card and/or an emergency fund in situation when an unexpected expense has occurred could leave you in a troubled position. This is in a sense that you could not swiftly cover the unforeseen expense. Then you need to borrow money from your parents, friends and family in general, letting them know that you have a financial problem. For this reason, having a credit card could be a valuable alternative, serving as an emergency fund, at least until you accumulate enough capital to have real emergency fund. This could be a good reason as to why you need a credit card.

Having your own expense tracking system

Keeping a track record of your purchases on a monthly base is highly important and also a time-consuming task. It is important because that way you could maintain control over your budget as well as spending level. It is time-consuming because you have to record every purchase you have made throughout the month. Having a credit card helps you tracking your expenses hassle free. It could be said that a credit card, can in some way, serve as your accountant (LOL) because it will keep record of all your transactions for you.

Building your credit score through payment history

Having a good credit score is extremely valuable and important when you decide to take on a mortgage or any other form of loan. This is in terms of the easiness for getting approved as well as the interest rate you will pay (the higher the credit score, the lower the interest rate should be). The credit score is calculated on the basis of couple of elements, each having its own weight in the overall score. When calculating your FICO score, payment history determines 35% of your FICO score.

Having a credit card, means that you are building up a credit history, which will prove to be beneficial in the future. The positive impact on your credit score will be evident if you use your credit card wisely, you should always pay your monthly minimum on outstanding amount. Stated differently you should set in place a good managing practices with your card. This is positive because bank lenders will have track records about your financial behavior. Meaning that you will help in their decision-making process since they can examine your habits and awareness in repayment of your outstanding amount. If you don’t have credit card (or other loans) then you could be placed in the category of borrower with low credit score (remember, payment history accounts for 35% of the FICO score).

As with everything else, the final decision regarding the question whether you need a credit card or not, is entirely yours. But, before making any decision, you should be aware about the benefits you could have when owning a credit card. Also, you should consider the effect on your everyday activities. This is in a sense that having a credit card could significantly reduce the time you spend on performing important but time-consuming activities.

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