When am I required to have a credit card?

You may ask yourself, “Is a credit card really required for my financial existence, or can I just avoid credit cards altogether an only use my debit card?

While it used to be that certain retailers, hotels and rental car agencies used to only accept credit cards.  Today, most, will in fact allow customers to book rooms or rent cars with a debit card.  One downside to using your debit card, however, is that when you book  your room or finalize your car rental, the hotel or rental company will put a hold on your debit card account for hundreds of dollars more than the cost of your stay or rental.  This means that you won’t have access to those funds until you checkout or return your rental car.

With a credit card, it is usually less cumbersome, since it only temporarily reduces your available credit and doesn’t actually lock up your liquid funds. Often prepaid cards, don’t make the cut for hotels or car reservations, and my be treated more like a gift card than a debit or credit card. 

Anytime you feel any risk divulging your credit card information such as online shopping it is highly recommended to use a credit card.  Debit cards don’t have nearly the same degree of fraud and purchase protection as credit cards.  It may be much more difficult to sidestep liability if an identity thief gained direct access to your bank accounts through your debit card information.

Here are a few other benefits that you can expect when using a credit card rather than a debit card or even cash:

·      If you pay your bill in full every month and have a reasonable credit limit, you won’t likely need to be as vigilant about going over your credit limit as you’ll stay well below it. When using debit cards exclusively you always need to know the balance on your account to ensure you’re not getting into overdraft fee territory.

·      Credit cards are required for building credit especially if you’re considering purchasing a home or need a business loan in the future. Debit cards do not get reported to the credit bureaus, and won’t get you there.

·      Combined with discipline, rewards programs can help you earn free travel and other rewards.  Remember, the credit card companies are betting that you’ll carry a balance and pay them interest.  The way to come out on top is to pay your balance every month and never purchase anything you can’t already afford. 

·      While many people prefer debit cards because they never need to  worry about paying their bill on time.  We strongly recommend you enroll in an automatic payment option with credit card companies so that either the minimum monthly payment or the full balance is automatically deducted from your checking account.  You’ll never have to worry about pesky late fees, and intimidating penalty APRs if you do    

Good Credit Sense

Based on these benefits, we recommend that you use a credit card when you use it responsibly.  Avoid the trap of purchasing something you can’t afford using a credit card.