Credit cards may not be a necessity for everyone, but they can make your life much easier and even help you save money.
Paying with a credit card comes with benefits you may not get with other payment methods: rewards, security, convenience, and more. But credit cards also carry the risk of going into high-interest debt if you spend beyond your means.
While you may not need a credit card for most purchases, there are advantages to having access to credit. Here are some reasons to open a credit card:
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Build credit. Paying your credit card bills on time and maintaining a low credit utilization ratio (among other good credit habits) can help you build a good credit score. Good credit can help you qualify for loans (mortgages, auto loans, personal loans) and qualify for lower interest rates in the future. Credit card companies report your card usage to the credit bureaus; As your positive payment history and other good habits appear on your credit report, your score will increase over time.
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Emergencies. Even if you have a solid emergency fund, having access to a line of credit can be helpful when faced with an unexpected expense. If you use your credit card during an emergency, remember to pay it off before the due date to avoid interest charges.
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Earn rewards or get benefits. Cash back or points and miles rewards can offer significant value on your everyday spending. Look for cards with rewards that align with your most common purchases; Travel, groceries, gas stations, and restaurants are common reward categories. You can then put your earnings toward future purchases or toward your statement balance.
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Convenient payment method. Credit cards are often more convenient than cash, especially if you need to visit an ATM frequently. Remember to keep track of how much you charge so you don’t spend more than you can afford.
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Take advantage of a 0% APR. Some credit cards offer a 0% introductory APR on new purchases or balance transfers. Today, these introductory periods typically last between 12 and 21 months. You can use a 0% APR on new purchases if you’re planning a big splurge and want more time to pay it off interest-free. Or use 0% APR on balance transfers to get a head start on any existing debt you already have. Remember, any remaining balance after the introductory period will accrue interest at your card’s normal APR.
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Get additional protection for your expenses. Credit cards offer additional security thanks to fraud prevention and zero liability protection from your credit card issuer. Review your statements periodically so you can dispute fraudulent charges before paying off your credit card balance.
Read more about how to protect your purchases from payment fraud and online shopping scams.
Although they have great benefits, credit cards may not be for everyone; They also carry significant risks.
Credit cards have high interest rates, which can lead to costly balances. If you spend an amount you can’t pay before your bill is due, you will quickly accrue interest on that balance. Even if you can’t pay the balance in full, try to always make at least the minimum payment on time each month to avoid additional fees and penalties.
While credit cards can be great for building credit, using your credit card can also affect your credit score. If you make late payments, miss payments, max out your card, consistently spend close to your credit limit, or apply for too many cards in a short time, you may see a drop in your credit. Fortunately, credit scores change, so you can always get back on track with good credit habits.
Read more: How to use a credit card responsibly
Compare these pros and cons to help you decide if you need a credit card to achieve your goals:
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Rewards and benefits: Rewards credit cards can earn you cash back, points, or miles in several categories. Some also have additional benefits such as annual credits for travel or partner brands, discounts on certain purchases, and high-value welcome bonuses.
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Construction credit: Unlike other forms of payment, you can use a credit card to establish credit and improve your credit score. Making on-time payments, spending well below your credit limit, and other good credit habits can help you raise your credit score over time.
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Fraud protection: Today, most credit cards protect you against fraud and have no liability for unauthorized charges. Other protections may include extended warranties and purchase protection, travel insurance, fraud monitoring, and more.
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Potential debt risks: Falling behind on your credit card payments can get very expensive very quickly. When you don’t pay complete statement balance before the monthly due date, interest will begin to accrue at your card’s variable APR. Today, credit card APRs average well above 20%. Interest rates this high will lead to costly debt balances.
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Costs and fees: Credit cards also have other costs to consider beyond interest charges. Some cards (especially premium cards with the highest rewards value) charge annual fees, which you’ll need to pay each account anniversary to keep your card open. Other potential fees include balance transfer fees, late payment fees, foreign transaction fees, and more. Many credit card fees can be avoided, depending on how you use your card.
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Excessive spending: A credit card may not be the best option if you’re worried about going over your budget. The best way to use a credit card is as a debit card; Only charge purchases that you know you will be able to pay in full when the balance is due. But if you’ve gone into debt in the past or are worried that access to a high credit limit might tempt you to overspend, another payment option can help you avoid getting into credit card debt.
These are some of the best current credit cards if you want to improve your credit or open your first credit card with no credit history. Issuers regularly report your credit card account information to all three credit bureaus (Equifax, Experian and TransUnion), helping you build credit.
Tip: Many credit card issuers allow you to verify prior approval before submitting the application. When you apply for a credit card, you will undergo a rigorous credit check, which may have a temporary negative impact on your credit. Pre-approval allows you to check whether you are likely to qualify for the card without any effect on your credit.
Why we like it: With a Capital One Quicksilver Secured card, you can earn rewards (1.5% back on every purchase) while you build credit. You must pay at least a $200 security deposit to open the card, which acts as your credit limit. You can deposit more up to your maximum allotted limit. As you build credit, you may qualify to upgrade to an unsecured Capital One Quicksilver Cash Rewards credit card and get your security deposit back. Additionally, Capital One will automatically review your account after six months to determine if you’re eligible for a higher credit limit, with no additional deposit required.
Why we like it: The Capital One Platinum Mastercard is not a secured credit card, so you won’t need to make a security deposit after opening. Over time, you can use it to build credit by paying your credit card bill on time each month; Set up autopay to ensure you never miss a payment. After six months, Capital One will automatically consider your account for a line of credit increase, which can also help you build credit by making it easier to keep your credit utilization rate low. Capital One Platinum has no rewards and charges no annual fee.
Capital One also offers a secured version of this card – read our full review of the Capital One Platinum Secured Credit Card.
Why we like it: When you open an OpenSky Secured Visa card, you must submit a refundable deposit of at least $200 and potentially up to $3,000 (with approval), which acts as your credit limit. If necessary, you can also make partial payments over 60 days to fund your security deposit. After six consecutive on-time payments, you may be eligible for an increased credit limit (no additional deposit) or an upgrade to an unsecured credit card. OpenSky offers some cash back rewards when you sign up for offers from select partner retailers, but does not offer an ongoing regular reward rate. It also carries a $35 annual fee.
Read our full OpenSky Secured Visa Credit Card review.
Why we like it: Chase Freedom Rise has many benefits for first-time cardholders that can help them build credit and save money (including 1.5% cash back on every purchase). If you already have a Chase bank account, you can increase your chances of approval by maintaining at least a $250 balance in your Chase checking or savings account. Once you open Chase Freedom Rise, you’ll benefit from practicing good credit habits. For one, sign up for autopay within the first three months to get a $25 credit. You may also qualify for an upgrade to the Chase Freedom Unlimited® card. If you have an open Freedom Rise account, made a purchase in the last 12 months, made on-time payments for 12 months, and have no suspended Chase accounts: Chase will automatically evaluate your account to determine if you are eligible to upgrade.
Read more: Our picks for the best secured credit cards and best credit cards for college students today.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions are solely those of Yahoo Finance and are not those of any other entity. Details about financial products, including card rates and fees, are accurate as of the date of publication. All products or services are presented without warranty. Check the bank’s website for the most up-to-date information. This site does not include all offers currently available. Credit score alone does not guarantee or imply approval for any financial product.