What Are the Advantages of a Credit Card?
A credit card is a convenient financial product that can be used for everyday purchases such as gas, groceries, and other goods and services. It can also be a great resource for purchasing big-ticket items such as TVs, travel packages, and jewelry because the funds for these items are not always immediately at our disposal. Below are some of the benefits offered by many credit cards:
Credit card benefits
- Earn rewards such as cash back or miles points
- Protection against credit card fraud
- Credit score information for free
- No foreign transaction fees
- Increased purchasing power
- Not linked to checking or savings account
- Putting a hold on a rental car or hotel room
Our credit card benefits guide:
When making a purchase with a credit card, it’s important to remember a credit card primarily acts as a loan that needs to be paid back. This loan has an annual percentage rate (APR) which is the rate you’ll pay if interest charges accrue, according to the terms of your credit card agreement. The APR is determined by many factors, including a person’s creditworthiness, payment history, and the type of credit card. Someone with a strong credit history may have a lower rate than someone with little or no credit history.
Credit cards differ from debit cards in that a debit card is linked directly to a money market or checking account and debited from the available balance in that account. There is no monthly bill or interest charges because, unlike a credit card, there is no money due after the transaction. In addition, credit cards provide you with an opportunity to build credit whereas debit cards usually do not.
Credit cards have a credit line, which is the maximum amount of credit available to make purchases. The credit line is determined by many factors, including a person’s credit history, income, and how much of their current available credit they are using. As purchases are made, the available balance is the amount usable to spend at that given moment. As an example, if someone has a $1,000 credit line but makes a purchase for $200, they will then have $800 as an available balance.
What are the benefits of using a credit card?
When used responsibly, credit cards can be valuable tools for earning rewards, traveling, handling emergencies or unplanned expenses, and building credit.
A rewards credit card does exactly what its name implies: rewards the cardholder for making purchases. Rewards can vary by issuer and card type. Some rewards come in the form of cash back, discounts on gas station purchases, and even travel miles. For those who use their cards regularly, earning rewards is one of the primary advantages of credit cards, as cardholders can redeem them for things they were going to purchase already as well as the occasional treat.
Credit cards can also be beneficial when traveling. This is because some major car rental companies and hotels require a hold on a credit or debit card to reserve a vehicle or book a room. This procedure can take several days or longer. During this time, the amount of the hold on either a credit or debit card is not available to use. Because you may not have the necessary funds in your bank account, credit cards increase your purchasing power, providing you with the required funds at the time they are needed.
Some credit cards offer fraud alerts to serve as a safety net if someone experiences a theft of their card or information when traveling. In the case of potentially fraudulent activity, an alert may be sent via a phone call, email, or text message, and the transactions can be stopped. Because a credit card isn’t linked to a checking or savings account, there is less risk of the thief gaining access to the money in these accounts. For example, with Discover’s $0 Fraud Liability Guarantee, you’re not responsible for unauthorized purchases on your Discover credit card.1
How do I use credit cards responsibly?
Like most financial products, the advantages of credit cards are best enjoyed when cards are used responsibly. It is essential for anyone who decides to open a line of credit to consider how they plan to make the payments and how to use their newfound purchasing power responsibly.
It can be beneficial to use a credit card for purchases that allow for the balance to be paid off within a reasonable time frame. If there is no plan to pay off the balance, however, it will likely continue to accumulate interest, reduce spending power and potentially limit the benefits of having a credit card. You may be able to calculate the interest and payoff time of any credit card with online tools, like the Credit Card Interest Calculator from Discover. A good rule of thumb for using credit cards responsibly is not to use them for impulse purchases or unaffordable items if you cannot pay it off within a reasonable amount of time.
What is a balance transfer credit card?
Credit cards may offer balance transfer options, and responsibly maintaining these benefits is important. A balance transfer is when someone moves the balance on one or multiple credit cards to another credit card. The transferred balance is then subject to the interest rate and terms of the new card. Credit card issuers may offer limited-time, zero percent introductory interest balance transfers to new applicants and cardholders or existing cardholders with a low balance. In some instances, there may be fees associated with a balance transfer and after the introductory offer, interest rates may apply. When utilizing a balance transfer offer, make sure to read the terms and conditions and plan on responsibly paying off the balance prior to the end of the introductory offer to avoid paying interest on the remaining amount.
Which credit card should I apply for?
Deciding on a credit card should be given as much consideration as any other financial decision, like applying for an auto or home loan. Cards vary by issuer and type, so what works for one person may not be the best option for another.
For someone who frequently travels – for business or pleasure – a travel or miles card offered by credit card issuers could be a good choice. Depending on the card, there can be rewards for everyday purchases. A cash back credit card may be a better choice for those who enjoy being rewarded for making those purchases. Some cards offer cash back on daily purchases and enhanced rewards that can be activated in specific categories up to a maximum that rotates on a quarterly basis. For students, there are often special credit cards with programs designed for someone beginning their financial journey.
Cash back bonuses can typically be applied toward your statement balance, may be redeemed for gift cards, or sometimes even used to pay for purchases directly at another retailer. Knowing which types of cards are available and what they offer is a major step in the comparison of credit cards before applying.
Speaking of applying for a credit card, below is an example of what you will likely need to complete a credit card application. Note that this may vary by issuer and card type.
Discover card advantages
Discover credit cards offer a number of advantages worth considering. Each card has its own terms, and you’ll want to study them carefully. But here are a few of the upsides you may be able to look forward to if you become a cardholder (see further details at the bottom of this article):
- Cash Back and Cashback Match: Eligible Discover cardmembers can earn cash back from purchases made using their Discover credit card. Different cards offer different rewards programs, i.e., cash back on everyday purchases versus cash back on gas and restaurants, so you’ll want to choose the one that rewards your spending habits. Regardless, all Discover rewards cards come with advantages like Cashback Match, an unlimited dollar-for-dollar match of all the cash back you’ve earned at the end of your first year2.
- FICO®Credit Scorecard: Discover cardholders can check their FICO® Score3 any time for free without any impact on their credit. That means you’ll never be guessing about your score, and you can easily keep track of your progress toward building good credit if that’s your goal.
- Security: All Discover cardmembers are protected with Discover’s $0 Fraud Liability Guarantee, which means you’re never responsible for unauthorized purchases on your Discover card.1 Discover will also monitor thousands of Dark Web sites and alert you if they find your Social Security Number.4 Activate for free.
- Convenience: Check out quickly when you tap and pay with your contactless card, or add your card to Apple Pay, Samsung Pay or Google Pay, for a fast and easy checkout.
- Wide Acceptance: Discover credit cards are accepted at 99% of places nationwide that accept credit cards5, so chances are you’ll be able to use your Discover card wherever credit cards are accepted.
Discover it® card benefits
There are a number of key advantages to using the Discover it® card, including those listed above. The rewards profile differs, however, depending on which Discover it® card you have:
- Discover it®Cash Back: The Discover it® Cash Back cardholders earn 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, gas stations and when you pay using PayPal, up to the quarterly maximum when you activate. Plus you earn 1% cash back on all other purchases, and an unlimited dollar-for-dollar match of all the cash back you’ve earned at the end of your first year with Cashback Match.2
- Discover it®Chrome: Discover it® Chrome cardholders earn 2% cash back at gas stations and restaurants (including cafes and fast-food) on up to $1,000 in combined purchases each quarter, plus 1% on all other purchases automatically.6 Chrome cardholders also earn Cashback Match their first year.
What to look for in a credit card
Choosing a credit card is a major financial decision. With that in mind, make sure you understand every aspect of the card before choosing one. To help you do that, here are six key card features to look into as you shop around:
- Fees: Credit cards could come with any number of fees, such as annual fees, foreign transaction fees, balance transfer fees and late payment fees. Ideally some of the fees you’ll never encounter if you use your card responsibly — like late-payment fees. Others, like annual fees, might be unavoidable and you could be on the hook for them year after year.
- Rewards: Credit card rewards run the gamut, from cash back and airline miles to hotel points and retail perks. Every rewards credit card has a unique offering, and a unique set of terms around how rewards can be earned and redeemed. The trick is to find a card with rewards that favor your spending profile. For example, an airline miles card that rewards spending on airfare may not be a good fit if you only fly once a year. But a gas rewards card might be just the match for your hour-long commute to work. On the other hand, some credit cards are less rewards-focused, instead catering to students (student credit cards) or folks looking to build up a credit history (secured credit cards).
- Promotions: Promotions, such as welcome bonuses that offer enhanced rewards for a limited time, introductory APRs, or 0% APR on balance transfers, are common ways for card issuers to appeal to new applicants. These offers can be a great way to squeeze extra rewards out of your credit card, or temporarily lower your interest rates, but make sure you understand them fully before taking advantage. Many promotions are time-limited (like introductory APR), or come with spending thresholds (like sign-up points or miles that are only awarded if you spend a certain amount of money).
- APR: Credit cards can have multiple APRs Among them: introductory APR, balance transfer APR, standard purchase APR, cash advance APR, and penalty APR. You’ll want to understand all of them and compare across cards while you’re weighing your options. Of course, if you pay your balance on time and in-full every month, you won’t have to worry about paying interest.
- Acceptance: Is the card accepted where you shop? Some credit card networks are wider than others. It’s a good idea to research the footprint of the card issuers you’re considering to make sure the one you choose is widely accepted.
- Security: What security features does the card offer? Will the issuer text you if your Social Security Number is used to run a credit check? Can you disable your card easily if you lose it or it’s stolen? Having features like these can give you critical peace of mind if something goes wrong.
Armed with the knowledge of how credit cards work, the benefits they can provide, and how to use them responsibly, it might be time to take the next step and find that perfect card.
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