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Should You Get a Credit Card?

Credit Card Presentation on Orange Background – Get a Credit Card

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Credit Sesame debates whether you should get a credit card.

Getting your first credit card is a sign of adulting right up there with getting a driver’s license or proudly sporting an “I Voted” sticker. In fact, pulling out a little plastic card with your name on it to pay for something says “I’m a grown-up” like nothing else.

A credit card should be an indication that you are financially capable of running your life. Like driving or voting, getting a credit card is a decision that can have long-term consequences for better or worse, depending on how you use it.

Use a credit card smartly by paying it off on time each month and your access to the best rates on car loans, mortgages and other forms of credit can grow as you build your credit history. 

If you overspend and get into debt while paying your credit card bill late, then your first credit card could be an expensive lesson in why you should work on your money skills.

When to get a credit card

If you can manage a debit card, you should be able to handle a credit card well. A debit card pulls money directly out of your bank account as you use it. Buying something requires having enough money in your account to cover the cost. 

If you only have $20 in a checking account and you use a debit card to pay for a $50 dinner, the purchase will either be denied or accepted with a bank overdraft fee tacked on. If you avoid paying overdraft charges with your debit card, then a credit card can be a smart next step to manage temporary cashflow challenges. Not so smart if you plan to spend money that you have no chance of repaying.

A credit card is a good thing to have so you don’t have to carry a lot of cash around or find an ATM.

A sign that you’re ready for a credit card is if you pay your bills on time and keep your debt level low. Responsibility is a big part of being an adult, and the best way to use a credit card is as a tool to buy now and pay later, though not much longer than one month to avoid interest rate charges. A credit card is not a tool to buy now and wonder how you’ll pay much later.

Benefits of getting a credit card

When you get a credit card you may benefit from perks such as cash back and travel rewards. Not every card offers them, of course, and the best cards often require excellent credit. Here are some of the main benefits of having a credit card that almost anyone can get:

Build a credit history

Credit history length, or how long you’ve held credit accounts, makes up 15% of your FICO credit score. Building a good track record of how you’ve dealt with credit cards and other lending products can help you get low interest rates on a home and car loan, among other types of credit. A low credit score can mean paying higher rates or being denied a loan. Paying your credit card bill in full each month has the biggest impact on your credit score.

Shopping is easier

Shopping online and renting a car or hotel room is easier with a credit card, which can be used to place a hold on a reservation. You don’t have to have a credit card to shop online or make reservations, but it makes it easier. Beware of making too many online credit card charges and and carrying a high balance. 

Emergencies

Credit cards give you immediate access to money, and emergencies are times when you may need some money right away. Even if your card is nearing its maximum limit, you can call the card issuer and ask for an increase so you can pay for the emergency, such as a car repair on a weekend so you can get to work Monday.

No more carrying cash

Say goodbye to foreign transaction fees and ATM fees outside of the U.S. Most credit cards don’t charge foreign transaction fees when making a purchase overseas. The fees can add 1% to 3% of the purchase price.

If you’re using your bank’s debit card, an international ATM fee is likely be charged by your bank, often up to $5, plus a percentage of the amount you withdraw. Credit cards are cheaper than cash to use overseas, plus they usually offer a better exchange rate on purchases.

Downside of getting a credit card

A credit card isn’t for everyone. You might be happy paying with cash or a debit card, and can manage both well without being overdrawn. Here are some cons to having a credit card that you may want to avoid by not having one at all:

Overspending

People tend to spend more when using credit cards than cash, according to a study by the MIT Sloan School of Management. They pay a higher price, give bigger tips, and make more impulse buys, researchers found. Avoid overspending by buying only what you know you can pay off when the credit card bill comes due.

You already have too many bills

If your household budget is already busting at the seams, and you can barely cover your bills for necessities, then a credit card could cause you to spend or put off paying debt. Carrying a credit card balance can be expensive.

The average credit card interest rate was 16.65% in the second quarter of 2022, according to data from the Federal Reserve. Young borrowers with a limited credit history and poor marks on their credit report often pay 20% or more.

Both rates can make credit card finance charges expensive. A 20% APR on an average daily balance of $3,000 equates to $600 in interest every year.

You’re not ready

If you can’t handle a debit card responsibly then maybe you’re not ready for a credit card. You may like to get an understanding of credit scores, credit reports, how interest works, how to best use credit cards, and other financial concepts before applying for a credit card.

Bottom line on whether you should get a credit card

Deciding to get a credit card shouldn’t be taken lightly. A credit card can have many benefits, but if you’re not ready for the responsibility of using one wisely, then you may want to wait. 

The last thing you want is to get a new credit card, rack up a bunch of debt that you can’t pay off soon, and then pay interest for months on things you forgot you bought long after the bill is due. Such problems can lead to a poor credit score and problems getting loans at low interest rates in the future.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Aaron Crowe
Aaron Crowe is a freelance journalist who specializes in personal finance topics. He has written for Wise Bread, AOL, AARP, Bankrate and other websites that focus on financial literacy and saving money. He has also worked as a newspaper reporter and editor. You can follow him on Twitter @AaronCrowe.

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