The Benefits of Credit Cards: Why You Should Have a Credit Card (That You Pay in Full Every Month)

When it comes to managing my personal finances, I never use a financial tool or purchase something I don’t understand (i.e. maybe I’m missing out but I still haven't bought any cryptocurrencies, as I can’t find anyone to explain it to me in simple terms, which makes me believe that very few actually understand it). I broke that cardinal rule the first time I took out a credit card. I worked for a credit card company at the time, so I applied and got approved for the product. I did not understand it, even if I worked for the credit card company! I can confidently say it took me a few years to truly understand how they worked. It was very hard to find someone to explain it in simple terms. 

Thankfully, my mom had taught me the basics that I needed to at least not get in trouble: pay your balance in full every month, otherwise you will get charged extra money. Not fully understanding when or why I would get charged fees, the fear of having to pay for something and get nothing in return, forced me to use the card responsibly. I didn’t understand the terms on my card (statement date, grace period, payment due date, minimum payment, etc), so to avoid any risk of getting extra fees, I would actually pay down my card every time I made a purchase! 

To this day, if you understand nothing else, just follow my mom’s advice: pay your card in full every payment due date (and don’t fall in the ‘minimum payment’ trap!!). 

**To support my wealth-building feminist friends, I’m working on developing a glossary of most commonly used credit card terms - the stuff I wish I had known earlier but by sheer luck (or pure fear), I managed to avoid the negative consequences of my ignorance. List out any term you want me to clarify in the comments!

Unfortunately most women I know will fall in one of 3 categories

(1) No one ever taught them the basics, so they take out a credit card, don’t know how to use it, and end up incurring fees that could be avoided,

(2) Someone once told them credit cards are evil, they don’t trust themselves to use it responsibly, and make all their purchases on debit or cash,

(3) They spend on someone else’s credit card (as an authorized user)

A lot of generic advice out there suggests that you only spend with cash or debit if you want to get a handle of your finances. I disagree. I’d rather focus on teaching you the hidden dangers as well as the benefits of credit cards so that you know how to use them to your advantage.  If you understand credit cards and use them responsibly and intelligently, they can be an amazing spending tool. Now that you understand how credit cards make money from you (see my previous post) and how to avoid it, let me share with you why I personally make all my purchases on credit cards:

They help you build your credit score. We will go more in depth on the topic of credit score in a later blog post. But for now, know that your credit score is your financial responsibility report card. Your adulting GPA. Credit bureaus tally your score and report on it (aka the credit report, which includes the infamous credit score); they will share that information with anyone you give permission to access it. 

Rental applications, mortgage applications, credit card applications, auto loan applications, even some job applications will all be knocking on the credit bureaus’ doors to ask to see your adulting scorecard (credit score). Ensuring it has a high score is foundational to becoming a wealthy feminist.   

Women should ensure that they have a tool that allows them to build their credit score. Here’s a few misconceptions:  

- You have a credit card but you are an authorized user under someone else’s account (partner, parent, etc). This does NOT contribute to building  your credit score. In fact, you are building this other person’s credit score (but they are also liable for your debt).

- You have a mortgage but you are not listed as a co-borrower. This does NOT contribute to building your credit score

- You are borrowing money from a friend, family member, etc - even if you are paying it back on the agreed upon schedule, you are NOT building your credit score. 

- You have a high income, a checking account and / or sizeable savings and investments - this does NOT build your credit score either. 

Only a borrowing vehicle (credit card, loan, mortgage), in your name (meaning you are responsible for the management of the debt), will build your credit score. So if you don’t have a borrowing tool, you need one. Taking out a credit card is the easiest way to start showing that responsible behaviour. That may sound counter intuitive given that credit card debt is one of the most expensive forms of debt out there. But I’m not telling you to go into debt. I’m telling you to get a credit vehicle in your name, pay it in full every month (<- this is the not going into debt part), so that you can start showing the (banking) world that you are a responsible borrower and spender. Adulting 101. 

They can give you ‘free’ rewards and perks: Wealth-building Feminists now understand that those things don’t actually come for free even if you don’t incur interest because you pay your balance in full every month. Credit card companies are not charitable organizations. If you read my previous post, you will know that credit card companies receive a fee from the store (merchant), aka ‘the interchange’, every time you use your card at this merchant. Merchants take this into account when they set the prices of their goods. Unfortunately you usually pay the inflated prices from the store whether you use a card or not (with the exception of some small businesses who might give you a lower price on an item if you don't use a credit card. This is usually a win win for you and the small business, and I always take advantage of it if I have the cash on hand). 

So in general, you are going to pay the price anyway regardless of your method of payment: why not get rewarded from it? 

There are two types of rewards:

1. The ones that accumulate as you spend (i.e. points / miles / cash back, etc): those are pretty self explanatory and very well marketed by credit card companies. For example, they might tell you every statement how many points you’ve earned and what you can redeem. Since credit card companies profit when you spend, they will gladly remind you that those rewards are available to you the more you spend. I personally like cards that offer blanket cash back across all categories to take the guessing game out of ‘how much will I get back?’ whenever you make a purchase.  

2. The ones that come with the product but you have to claim (i.e. insurance, warranties, travel perks, lounge access, etc). Those are less obvious, and perhaps marketed when you are shopping for the card, but the credit card company will not remind you of those. It’s up to you to look it up, and take advantage of these perks when you need them. Why? Because typically the credit card company will only pay for these perks if you actually claim them. For example, most credit cards have some sort of extended warranty or purchase protection. If you just bought a pair of designer sunglasses on your card, and accidently sat on them and broke them, your credit card company might be able to replace it or refund you for the purchase. If you call them to claim this benefit, then the credit card company will have to pay for it.

Credit Cards as a Budgeting Tool: The ‘b’ word! So many women I know are scared of even looking at their finances in fear of being faced with the reality of where they spend and how much they spend. The ‘ostrich’ method has never helped anyone. Just ignoring a problem doesn’t make it go away. We will go over budgeting in detail in another post but consolidating all your spend on one credit card can be a great way to get a better diagnostic of your spending habits. 

At the end of the month, I download all my transactions and review and categorize my spending (all the credit cards I know of have this functionality available on their online banking). Something I would struggle to do with cash. 

These are the reasons why I believe you should have a credit card. However, if you have credit card debt right now (i.e. are carrying a balance, not paying your full balance or only paying the minimum payment), your first priority should be to stop spending on it, until you have paid down the entire balance, and can get yourself into a cycle of healthy spending and paying off your balance in full every single month.