The Debate: Are Credit Cards A Necessary Evil?

It’s often thought that credit cards are the devil. We’ve all heard the horror stories of people who have overindulged with their available credit and wound up deep in debt, destroying their credit score, or filing for bankruptcy. Yes, it’s all happened.

Your first gut instinct might be to just avoid the temptation and just shun the idea of having credit cards altogether. You might even go so far as to shunning the idea of applying for any type of credit at all. It’s a solid plan, right? Avoiding all credit will keep you out of debt, especially credit cards, and will prevent you from any kind of personal financial disaster. After all, you know nothing positive comes from credit cards and drowning in debt just isn’t your thing so who needs them.

Here’s the truth though, credit cards can be a necessary evil. These days, just making it through the day without needing some form of credit card is nearly impossible. And as much as you may hate the idea of using a credit card it can have its benefits.

Why You Should Have A Credit Card

If you are considering buying a home you probably already know that the very first thing a mortgage lender will require from you is your credit score. This is the very first step in the home financing process that decides whether or not you are able to be pre-qualified and then eventually approved for a home mortgage.

Unfortunately, you weren’t born with good credit, no one is. Credit is something that you have to build. Lenders need to see a history of you borrowing money and then paying it back, but it’s not that only thing they look at – they look at your timeliness. Do you pay on time? Do you often pay late? Pay on time regularly and you can increase your score. Pay late and your score takes a flying leap off a cliff. According to FICO data from Equifax, A single 30-day late payment can cost you as much as 90 – 110 points. Ouch! What’s worse is late payments are not forgotten quickly. They can sit on your report for 7 years.

Yes, it’s all very intimidating, but again, you need a credit history for home loans and credit cards are easily the fastest way to establish a credit score. That’s good news for buyers who may have a limited credit report or no credit report at all. Using a credit card intelligently and paying it back can give you a score for lenders that they can then use to prequalify you for a purchase.

Also, having a credit card is handy for other things like emergencies. You can’t predict all of life’s expenses like vehicle repair, broken appliances, trips to the vet, or getting stranded in a snowstorm and needing overnight shelter in a local motel. This stuff happens, trust me.

The point is, used responsibly, credit cards can be beneficial.

Getting Started with Responsible Credit Card Usage

Credit cards as you know are simple, at least in the basic terms of how they are used. You charge something on a card and then you pay it back each month – either in its entirety or some other smaller amount. In most cases, it’s your choice.

One of the smartest ways to utilize a credit card is to:

  • Only charge an amount on the card that you might be able to pay for in cash
  • Pay the full balance off on the card each month

Be sure you don’t:

  • Pay the minimum amount

People get into trouble when they start paying the minimum amount as interest is charged on the unpaid balance, interest which accrues quickly and actually compounds daily. It won’t take long before you could be up to your neck in debt.

There’s no doubt that credit cards have their flaws and can lead you down a destructive path, buy when used appropriately they can be one of lifes’ most incredibly useful tools. If you are in a situation that requires you to show credit like buying a home or financing a car credit cards can be a quick way to establish it. However, before you do that, be sure to take the time to fully understand how they work and the possible consequences. Ultimately you are in control of earning your credit score, be sure to do it wisely.

Ultimately you are in control of earning your credit score, be sure to do it wisely.

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