Do You Need a Credit Card?

At its most basic level, a credit card is simply one of many forms of payment, such as cash, debit cards and checks. But credit cards offer convenience and benefits in comparison to other forms of payment. 

Reasons you might need a credit card

Credit cards typically offer helpful features and benefits not available with other forms of payment. For instance, if your credit card is lost or stolen, many card issuers have a $0 liability policy.  Issuers like Discover do not hold cardmembers responsible for unauthorized purchases on their accounts.¹ If your cash is lost or stolen, you may be less likely to recover it. In addition, credit issuers monitor transactions and can flag something that seems suspicious and alert you, which could help you avoid fraudulent purchases in the first place.

Credit cards also offer rewards that other types of payment don’t provide. For example, if you want to earn cash back on your purchases, you’ll need a cash back rewards card. 

Finally, a student or secured credit card may allow those who are new to credit to build their credit history. Having an established credit history is helpful for applications for auto loans, a home mortgage and other types of loans. 

Drawbacks to having a credit card

Despite all the advantages of having a credit card, there are factors that might make you decide not to get one. 

For example, credit card users have the potential to accumulate too much debt if their accounts are not managed responsibly. When you use cash, you’re unable to spend cash that you don’t have with you, but with credit cards, it can be easier to charge more than you’re comfortable repaying. 

Credit card accounts can also come with fees and interest payments. For example, you may be charged a late fee if you fail to make the minimum payment required by the due date. If you use your card to get cash, your credit card issuer will typically charge a cash advance fee that is greater than what you might pay when using an ATM card to access cash. You will also be charged interest according to the accounts cash advance APR. While Discover Cards have no annual fee, some cards charge an annual fee that may cost more than the rewards you earn. If you carry a balance month-over-month, you may owe interest on your outstanding balance. 

Finally, credit cards have the potential to hurt your credit when you don’t manage them responsibly. For instance, if you incur too much debt, or make your payments late, your credit score can potentially suffer. This isn’t a risk that you take when using cash and debit cards. 

Bottom line

Many people find that the rewards and benefits of cards outweigh the costs and risks. Ultimately, credit cards are not always the best form of payment for everyone or every purchase, but they can be valuable financial tools when used responsibly. By understanding how a credit card differs from other forms of payment, you can make the right choice for your needs.