Top 3 benefits of credit cards

Curtis Arnold
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Curtis Arnold
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Top benefits of credit cards

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A 2021 study by the Federal Reserve Bank of San Francisco revealed that credit cards account for 27% of consumer payments, surpassing cash payments (19%) for the first time since the study launched in 2016.

Despite the growth, a CardRatings survey by CardRatings in late 2018, revealed that cardholders are often unaware of money-saving credit card perks and basic card benefits.

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The data reveals that people often don’t know what benefits their card offers, let alone whether they’re valuable.

Geoff Williams, CardRatings contributor
Survey: Cardholders unaware of money-saving credit card perks, benefits

I find this lack of awareness to be very disturbing. It is my hope that this article will help educate you about the various benefits your card likely offers.

One of the best ways to understand the benefits of credit cards is to compare these benefits to those offered by other payment options. Typically, such comparisons focus on debit cards and cash, which accounted for 19% and 28% respectively of total payments in the survey cited above.

Finally, please note “fine print” credit card benefits vary greatly. You should carefully review your card’s terms and conditions to explore what specific benefits your card offers.

The rest of this article will explore a few of the top advantages common across many credit cards.

Credit cards help you build or rebuild your credit score

One of the top benefits of credit cards is that they can help you build your help you build your credit. That sets them apart from debit cards and cash, which cannot help you in this area.

Why should you care? Well, simply put, having a good score is an important “building block” toward overall financial success. Most consumers know that their credit score determines what interest rate they will pay on a loan, but it can have far more far-reaching impacts as well.

Markia Brown, a certified financial education instructor, registered financial associate and award-winning content creator points out that “building and maintaining a high credit score is essential for financial security, and by properly using a credit card, you can achieve that.

“Proper card use means staying under your credit limit, paying your bill on time, and paying the balance off completely when possible.”

These days, many card issuers track your credit score for free. It’s a nice perk given that your credit score isn’t included in your credit reports, which you can pull for free from each of the three main bureaus – Experian, Equifax and TransUnion – at least once a year.

“Many card issuers give you free access to your credit score, giving consumers the power to monitor, maintain, and/or improve their credit health,” Brown emphasizes. “[This perk] is often the most underutilized benefit offered to consumers through their credit cards. To better utilize this benefit, consumers should check their credit score at least once a month through their card issuer.”

BONUS TIP!

Card issuers that track credit scores for their cardholders generally only monitor one type of score, likely either your FICO or VantageScore. The numbers should be similar even though the formulas for determining your score differ slightly. If you see significant differences between your scores in the same timeframe, consider the possibility one of your credit reports contains an error you should investigate.

Checking your score on a monthly basis can encourage you as you seek to boost your score. The good news is that it usually takes less than a minute and many card companies will include a handy graphical display of your score on your statement.

Credit cards provide better fraud protections than debit cards

Unless you travel with bodyguards 24/7 and never lose anything, carrying a lot of cash generally isn’t a good idea.

“If someone steals your cash [or if you simply lose it], the money is just gone,” Brown notes. In comparison, both debit and credit cards offer fraud protection as guaranteed by the Fair Credit Bill Act, but how much protection differs between those two payment types.

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… in the event your credit card is lost or stolen and used for unauthorized aka fraudulent purchases, your personal liability is legally capped at $50. Furthermore, in most cases, you won’t owe anything thanks to zero liability policies offered by card companies.

Bill Gilman, CardRatings contributor
What’s the point of having a credit card anyway?

Similar protections apply to debit cards, with one crucial difference: Your personal liability for debit card fraud depends on how quickly your report the fraud. Failing to report debit card fraud quickly, could mean you pay for all of it.

The “hassle factor”

Another related advantage of credit cards over debit cards involves the “hassle factor.” Simply put, it can be a big hassle to pay your bills while attempting to get your money back, especially if the amount of your fraudulent debit card charges is high.

“If your debit card is used fraudulently, the money is taken directly from your bank account (typically a checking account), and it can take a while for the bank to investigate and return your funds,” Brown explains, adding that, in the meantime, checks or other charges could bounce since your account “has been drained.”

Fraudulent credit card charges, on the other hand, don’t negatively impact your actual cash balance.

Whether using a credit or debit card, it’s important to act quickly.

“If your card is lost or stolen, you can instantly freeze it, often just with the click of a button on an app on your phone,” Brown notes. “Or, if you prefer, you cancel it and order a new card. Similarly, you can unfreeze it just as quickly.”

Remember, reporting debit card fraud as soon as possible could mean the difference between the bank or you being responsible to cover the losses.

FIRSTHAND ACCOUNT: Twice in my life I have had to drop everything and fly out of state to deal with family medical emergencies. Both times it wasn’t clear how long I would have to stay. Because I had a credit card, I was able to get a plane ticket, rent a car, and keep myself fed. If I’d had no card, things could have gotten dicey – especially since the second medical emergency dragged on for several months.

– Donna Freedman,
Author and longtime personal finance journalist

You can earn better rewards using a credit card instead of debit

It’s no secret that many credit cards offer popular rewards programs that allow you to earn points, miles or cash back on your everyday purchases. I, like millions of reward card fans, have learned to legitimately profit from cards.

Some debit cardholders falsely assume their rebate programs are similar as credit card programs. the reality, however, is that debit card rebate programs lag significantly behind.

“Depending on how you use your credit card, these rewards can add up to significant savings over time,” Brown points out. “Debit cards, on the other hand, typically offer fewer, if any, rewards.”

The bottom line is that if a debit card offers a rebate program (many or even most don’t), then you can usually only earn half or less of what you can expect with a credit card.

Case in point, the CardNamediscontinued offers a flat 2% cashback on all credit card purchases. However, Citi’s debit card rewards program as of this writing pales in comparison:

  • For each purchase that requires your signature, you only get 1 point for every $2 you spend (almost all credit cards at least give you one point for every $1 you spend).
  • For each purchase that requires you to enter your PIN, you only get 1 point for every $3 you spend.

Heshan Demel, a long-time fan of reward cards and a also a self-professed “deal seeker,” bluntly states his favorite credit card benefit: “Free points. Cash rewards.”

Freedman agrees, noting she uses her rebates for “free gift cards to pay for birthday and holiday gifts” and says she knows other people who stack them up for free hotels and/or free travel.

Final thoughts

The purpose of this article is not to bash debit cards, but rather to point out some major advantages of credit over debit. Credit cards aren’t for everyone, particularly if they tempt you to spend more than your monthly budget. Brown sums up this downside well.

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The main downside to credit cards in comparison to other payment forms is the potential for debt. Unlike debit cards or cash, which draw directly from your available funds, credit cards allow for borrowing money up to a certain limit. This means it’s possible to spend more money than you have, leading to debt. Additionally, if you don’t pay your balance in full each month, you’ll accrue interest or finance charges, which can add significantly to your total balance over time.

Markia Brown

If you’re able to avoid this pitfall, the benefits of credit cards are much more than the three noted above. Making cards, whether debit or credit, work for you is the key (i.e. leveraging them as financial tools).

I sincerely hope these insider tips are helpful to you and would love your feedback on your personal experiences with card benefits. Who knows, I may include a tip from you in a future article!

author
Curtis Arnold
CardRatings Founder

Curtis founded Cardratings.com in 1998 and, in so doing, helped pioneer the concept of rating credit cards. He has been a nationally recognized expert in consumer credit for well over 20 years. He is the author of “How You Can Profit from Credit Cards: Using...Read more

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The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we cannot guarantee the accuracy of the information in this article. Reasonable efforts are made to maintain accurate information. See the online credit card application for full terms and conditions on offers and rewards. Please verify all terms and conditions of any credit card prior to applying.

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