Should you have a credit card?

If you’ve never had a credit card the thought of getting one might be a little intimidating. You may have heard horrible stories about other people with a crazy amount of credit card debt that ruins their credit, their lives and everything else. Why would anyone want to get tangled up in something like that?

I can remember thinking the same thing. I didn’t want a credit card because I didn’t want to take the chance of “ruining” my credit and living a life full of debt that was completely unmanageable. But, the truth is I was simply uneducated on how they actually worked. So, I am here to clear it up for you because they are actually really beneficial, and as long as you use them right, they are meant to work to your advantage.

How does a credit card work?

Let’s start with the basics. A credit card is given to you with a line of credit that is technically lent to you. This could range in any number, but let’s say your imaginary credit card for the remainder of this post has a line of credit of $500 with an interest rate of 8.99%. The cute little plastic card has $500 for you to use, whenever and wherever you want. Sounds fun, right?

Let’s say you go out to dinner and use your credit card to pay $50.26. You will see that line of credit go from $500 to $449.74. You still have that money to spend, but let’s say you choose not to use it.
Now, a couple weeks later, your statement comes in and your credit card bill is in the amount of $50.26 for dinner. It’s due in 2 weeks. Can you afford to pay that $50.26 by the due date? If so, then great. If not, you will have the option of paying the minimum payment. But, the longer the balance stays on the credit card, the more interest you will accrue on that balance because you have yet to pay back the money lent to you in full. It will also increase if you keep spending with that credit card before the bill comes in.

Now that you know how the credit card actually works, let’s talk about why it’s good to have one and the right ways to use it. By the end of this post, you should be able to decide if you are a good candidate for a credit card.

You could benefit from a credit card…

If you need to build credit

You may know that one person who brags about their unbelievable credit score and how they can get approved for anything they want because of it (good for you, Jessica). But, you actually really do need credit to do things in your adulthood. Having good credit is important when you’re trying to get approved for loans, want to buy a house and even get a job in some cases. And this doesn’t mean simply having credit, but good credit that is well maintained over a long period of time. Credit cards help you build credit because when you pay the balance by the due date, it shows lenders you are a credible borrower and can handle paying back money that is lent to you. I didn’t understand the importance of credit until I was applying for college and needed student loans. Because I didn’t have enough credit in my name, I had to have a co-signer on my loans, thanks Dad. But, having those loans and paying them back on time builds up my credit and makes me look like a credible borrower to other lenders.

If you’re good at paying your bills on time

When you have a steady income and a have a great handle on your monthly expenses, you will probably be OK with a credit card. To use the credit card responsibly and really let it help you build your credit, the most important thing you need to do is pay your bill on time. If you have a hard time paying bills when they’re due, it’s probably not the best time to get a credit card. Missing a phone or electricity payment may result in getting the services turned off, but you can get them turned back on when you pay what you owe. Missing credit card payments and damaging your credit could take a very long time to fix.

If you don’t intend to make large purchases with the credit card

You can pay for anything under the sun with your credit card, but that doesn’t mean you should. And, it’s not required to reap the benefits. For instance, I only put one expense on my credit card each month, and it is usually never higher than $50. I have a $2,000 credit line, but I am no Kardashian, so I do not intend to spend like one. Lenders also like to see your balance below 30% of the credit card limit.

If you ever need a source of quick cash, like in emergencies

The money on a credit card isn’t like a debit card where it is taken directly out of your bank account. It’s in a separate line of credit that you use and have to pay back when the bill comes in (that’s when the money comes out of your account). If you’re short on cash, a credit card is like having cash on hand. You just have to make sure you’ll be able to pay it back when it’s time.

It’s not as scary as you thought, right? You only need to use the credit card responsibly to avoid getting tangled up in that world of credit card debt you heard was so horrible.

Quick credit card tips:

  • Make an effort to consistently pay your bill on time and in full to avoid carrying a balance.
  • Always be aware of your interest rate. In the case you do carry a balance, the interest rate causes that balance to build and build over time. Know what you will be charged, especially if you’re out of the “introductory” period.
  • Use your credit card’s online banking services to keep up-to-date and real time track of the spending on your credit card.

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