The Good and Bad of Credit Cards

Now that we’ve laid down the basics of what credit cards involve, let’s talk about the pros and cons of getting one. 

Pro: the benefits of a good credit score.

The #1 reason to get a credit card: it’s necessary in order to build your credit score. And why should you get a credit score? This magic number, tied to your name and of the highest importance to banks/businesses/employers, will play a big part in influencing offers available to you. For one, it determines the prices you’ll have to pay on big purchases later lin life, like buying a car or house or getting a loan to start a business. Further, some companies ask to see your credit score when they’re considering hiring you. Overall having a higher score makes you more “trusted” in the eyes of people in charge, sending a signal that you are responsible and can be given even more responsibility. Of course, your credit score will only go up if you: a) always pay your credit card bills on time, and b) actually frequently use your credit card. Late payments or not using the card at all will either harm or leave your score unchanged.

Pro: rewards/bonuses.

The sweet frosting of owning a credit card - you probably shouldn’t get a card just for this, but it sure is a nice extra benefit. Credit cards almost always beat debit cards when it comes to rewards - things like getting “points” or cash back just for making purchases on the card, discounts when you buy things using that card, or other perks related to simply owning the card. Different cards may specialize in different rewards - certain ones being better for the frequent traveler or restaurant-goer - but almost all credit cards these days come with some version of rewards for spending done with the card. Reward cards generally fall into two categories: 1) Cards that pay a fixed reward rate for all transactions (such as 1% cash back) and 2) Cards that vary the reward depending on the type of transaction (such as 3% for travel and 1% for everything else or some other combination). The most important rule of thumb is to select a card (or cards) that pays the highest rewards for the categories in which you spend the most. We’ll dive more into that in the next step of this map.

Con: The biggest danger is high-interest rates, debt that you may rack up if you don’t make your monthly payments.

Especially for those with no credit history, that first card may come with terms stipulating upwards of 20-25% interest on monthly balances. The key here is it’s only if you don’t pay off your credit card balance. As long as you always make your payments on time and in full, you will never be charged for interest payments!

Ultimate pro: You’ll get better deals on future credit cards, making the above pros even larger and the cons smaller.

In other words, as your credit score grows and your history lengthens (assuming you’re not missing any credit card bills), you’ll be offered access to cards with even better rewards and benefits, lower interest rates, higher credit limits, and overall have an even easier time maintaining an excellent credit score. 

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You’ll eventually have to get a card. It sucks, but that’s how the current system is set-up: if you want to have better opportunities later for buying that car or house, then the best way to put yourself in that position is to get a credit card now and build a strong history. Having a high credit score isn’t everything, but it sure will make things easier later on. Small purchases and on-time payments on a credit card now will result in many open doors when they may be most financially needed.