Many people believe the best way to stay in control of their finances is to avoid any form of credit and restrict themselves to spending only the money they have available in their bank accounts. Although at first this may seem to be an attractive strategy, in reality not owning a credit card can make life far more difficult.
When you apply for a car loan or mortgage, lenders will judge your eligibility on your past credit record. If you have had a credit card which has been kept within its limit and always paid on time, your credit score will reflect this, making it more likely that the bigger loan will be approved.
If, however, you do not have a credit card at all, lenders will have no past record to go on and your credit score will be significantly lower. Although you are unlikely to be refused a mortgage or loan as a result, you may end up paying a higher rate of interest than you would with a good credit score.
One huge benefit of credit cards comes whenever you find yourself dealing with an emergency. If your car breaks down, a water pipe bursts in your home or your television stops working, you have the funds available to deal with the situation immediately rather than waiting until your next payday.
Owning a credit card also gives you the opportunity to spread the cost of larger purchases, such as a holiday, over the course of several months. Although you will pay interest in this case, you can factor this in and know in advance exactly how much extra this will cost. Providing you repay the debt at a sensible rate, the interest will be relatively low. It is only if you pay back nothing more than the minimum amount for months at a time that the amount of interest you pay becomes significant.
Credit cards also give you the ability to take full advantage of sales, special offers and discounts without having to worry about finding the money in advance. You can also build up air miles and other useful reward points, simply by using your card for a few routine purchases. Many credit cards also provide purchase protection so that you can get your money back if the item you purchase is lost, stolen or damaged.
Credit cards are especially convenient and secure when it comes to travelling abroad. Activities that require a deposit such as hiring a car or booking a hotel room are far easier with a credit card as you do not have to tie up cash in the time between making the booking and making the rest of the payment.
Although some people may be wary of succumbing to temptation, the benefits of owning a credit card are clear. The best strategy in such a situation is to use the card for a handful of transactions each month and pay the balance off in full. This not only boosts your credit score, but also has the advantage of avoiding any interest payments.