Since I started this blog in 2007, I’ve spend a lot of time and energy writing about the dangers of irresponsible credit card use. I fought many personal battles with those little pieces of plastic and while I’m still wary (with good reason), credit CAN be used responsibly. In many cases, you may actually be better off paying with credit over debit. There are a lot of ways that credit cards come out on top.

Good reasons to use your credit card

1. Cash Back Programs

If you sign up for the right card, you can earn anywhere from 1-5% back on your purchases. Best choice in my opinion? The Discover More Card.

2.  Frequent Flyer Miles

Virtually every airline has at least one credit card. Cardholders can rack up frequent flyer miles at varying rates. Many, like the Southwest Airlines Rapid Rewards® Card from Chase offer a substantial signup bonus to get you started on your way to a free airline ticket. The Southwest card even gives you a birthday present of 3,000 bonus miles each year on your birthday – equal to $50 towards their Wanna-Get-Away Fare.

3. Points for whatever

Many card rewards work on a point system where you earn points per dollar spent. When you reach a certain point threshold, you can redeem your points for gifts, travel, hotels, or something from their catalog. A good choice in my opinion is the American Express Premier Rewards Gold Card.

4. Safety

Paying with credit cards can make it easier to avoid fraud. When your debit card is used fraudulently, the money is missing from your account instantly and may take a while to get back unless you deal with a very reputable bank like PerkStreet. Any scheduled payments or checks may bounce, causing NSF’s and making your creditors (and you) very unhappy.

By contrast, if your credit card is used fraudulently, you won’t be out any cash – you just notify your credit card company of the fraud and the credit card company resolves it.

5. Holding onto cash

When you make a purchase with your debit card, your money is gone instantly. When you make a credit card purchase, your money stays in your checking account until you pay your credit card bill (hopefully in full). There are two advantages: one, if you pay your credit card from an interest bearing checking account and earn interest on your money during the grace period, the extra interest is yours to keep. Two, when you pay with your card, you don’t have to watch your bank account every day to make sure you’re not overdrawn.

6. Insurance

Most credit cards automatically come with a host of consumer protections that you may not realize you have, such as rental car insurance, travel insurance, and product warranties that may exceed the manufacturer’s warranty.

7. Easier Acceptance

Despite television and radio guru claims, certain purchases ARE more difficult to make with a debit card. Try renting a car or booking a hotel room and you’ll almost always have an easier time with a credit card. Rental car and hotel companies prefer credit cards because it’s easier to charge customers for damages to a car or a room with a credit card. Using a debit card may result in the company putting a hold of several hundred dollars against your checking account to cover those just-in-case events. Also, when traveling in a foreign country, many merchants won’t  accept your debit card, even when it has a  bank or credit card company logo on it.

8. Building Credit

If you have no credit or if you’re trying to improve a poor credit score, using a credit card responsibly will help build your credit score because credit issuers report your payment activity to the credit bureaus. Debit card use doesn’t appear anywhere on your credit report. You can find some great choices for those needing to rebuild their credit on my Credit Card Information page.

Not everything is rainbows, unicorns, butterflies, and sunshine in credit card land. There are fees, there is the potential for late charges, there is the potential for interest charges if you don’t pay your balance in full each month. Many of us abuse them and end up in high interest debt then fight for years to get out of it.

But if you can manage yourself and use your card responsibly (aka like an adult), there are a lot of benefits to using your credit card.

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Life today isn’t easy without a credit card. Even if you intend to pay cash, you’ll need a credit card to rent a car, secure a hotel room, or make an airline reservation. They offer a lot more protections and security than most debit cards when you’re buying merchandise online, and although you don’t technically need one to qualify for a mortgage, using a credit card responsibly can mark you as a credit worthy risk when you want to buy a home. But what if you’ve never had credit? What if your credit needs to be repaired?

Build or repair your credit by responsibly using a secured credit card

If you’ve struggled with credit in the past or if you’ve damaged your credit with late payments, over-limit fees, or too many inquiries, you may not qualify for a regular credit card. If you find yourself in this situation, a secured or pre-paid credit card may be the only way to establish, or re-establish, good credit. You may have some questions about how a secured credit card works:

Where can you get a secured credit card?

• Applied Bank® Secured Visa® Gold Credit Card
• Silver Prepaid MasterCard card
• Visa Prepaid Card – FREE Direct Deposit, Online Pay Bills, Get Cash from ATM’s, Guaranteed Approval!
• AccountNow Gold Visa® Prepaid Card
• Platinum Zero® Secured Visa® Credit Card from Applied Bank®

What exactly IS a pre-paid or secured credit card?

A secured credit card is a credit account secured by a deposit. Should the bill go unpaid, the money in the account can be used to pay that debt. For example, if you deposit $350 into the account connected to the secured card, you can charge up to $350. You may be able to add extra deposits to the account and increase your limit or the bank may reward you for on-time payments and increase your credit limit without those additional deposits.

Who is eligible for a secured credit card?

It isn’t a walk in the park. Each credit issuer has different requirements for their applicants. Some will accept people with a recent bankruptcy, others will not. Some may require that the court discharge your bankruptcy before accepting an application. Some have a minimum credit score, while others may not. Either way, you’ll have to go through an application process.

What will my secured credit card limit be?

Generally, secured credit cards have limits between $300 and $500 but there are certain lenders who will start you off with $250 or even less. Your credit limit will be either

• the amount of your deposit
• a certain percentage above your deposit

How does the deposit work?

There are usually several options you can use for your deposit – a savings account, a money market account, or even a certificate of deposit (CD). Usually the interest rate you’ll earn isn’t that great and probably matches (at best) what you’d typically earn at a local bank. In other words, you won’t get rich on the interest your deposit earns.

Are there any fees associated with a secured credit card?

Though the fees on your secured card will usually be lower than fees charged on unsecured cards that are targeted toward those with poor credit, they still aren’t a “bargain” regarding the rates charged to customers. Usually those rates are in the high teens or even higher but if you’re practicing good credit habits and paying your bill in full each month, those rates aren’t important, are they?

Some issuers may have an activation fee or a monthly activity fee, but if you’re working to build or rebuild your credit report, you can look at those fees as the cost of building your credit. Fees can vary greatly from offer to offer so do your homework and shop around.

Make sure your secured card reports to all three credit bureaus

Always, always, always verify that your secured credit card issuer reports to the three major credit bureaus before wasting your time applying. The whole reason you’re using a secured card is to build your credit history. If the issuer doesn’t report, you’ve lost a MAJOR benefit.

One thing to also check is to insure that the issuer WON’T flag their report to the credit bureaus as a “secured card.” That flag could be a millstone around your neck since other creditors could suspect that you aren’t a worthy credit risk.

Signs your issuer is reporting to the credit bureaus

If you start getting additional secured card offers after making a couple of months worth of on-time payments, you’ll know your secured credit card issuer is reporting. Additionally, after three or four months of on-time payments, request your free credit report at www.annualcreditreport.com. Once you receive your report, make sure your credit card issuer is listed on it.

How long does my money have to be on deposit?

That’s a question you’ll need to ask your issuer. Some banks and issuers will keep your deposit for a few billing cycles, others will keep it longer, and still others will release it as your credit score increases.

How should I use a secured credit card?

The reason you’re using a secured credit card is to build a strong credit history, to prove you’re a responsible user of credit. You AREN’T using one to go into debt! Make small purchases that you can pay off each and every month and always pay on time. THAT’S how to build a strong credit file and the proper way to use a secured credit card.

Once you’ve rebuilt your credit with a secured credit card

If you’ve developed the discipline to responsibly use a secured credit card in a responsible way, you probably have the discipline to use an unsecured credit card. Use your old deposit to begin your own savings plan and take the training wheels off your credit bicycle.

After you’ve made 12 on-time payments on your secured credit card, should you decide to move on to an unsecured credit card, shop carefully. One of the best options is to use CreditCards.com and 
search their database of hundreds of different credit cards. One will probably suit your needs.

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Be aware of the differences in zero percent credit card offers so you aren’t disappointed when you get your first bill.

I received this email question in my inbox from a reader named Colin:

I was approved for a car at an introductory rate of zero percent but after I transferred my balance, my first bill showed that I was charged interest. What gives? Is this a scam of some sort?

No, Colin, it probably isn’t a scam as long as you’ve applied with a reputable and well-known card issuer like Discover or American Express. Credit card issuers often charge different interest rates on different programs. You could have one rate for a balance transfer, another for purchases and even a third for cash advances. The advertisement you responded to may have been for new purchases rather than balance transfers. Unless the card you applied for actually advertised a zero percent balance transfer, you may be stuck with it unless you wish to change cards. Even if that WAS the offer you saw, it’s always a good idea to read the offer from front to back, top to bottom to make certain you’re clear. Fine print, though it’s grown in size recently, is still dizzyingly complex and a sheer bore to read.

Despite the credit crunch, many card issuers still offer a zero percent introductory rate on balance transfers and purchases. If you’re dissatisfied with the card you presently carry, consider a card like the Discover® More® Card which is currently offering 0% intro APR on purchases for 6 months (then the variable purchase APR of 11.99% – 20.99%) as well as 0% intro APR on balance transfers for 18 months (then the variable purchase APR of 11.99% – 20.99%). Additionally, you can get 5% cash back in changing categories like travel, gas, groceries, restaurants, home improvement stores and $0 fraud liability plus automatic mobile and email fraud alerts. The better your credit score, the better your rate will be, but at least you’ll get zero percent interest on your balance transfer for a year and a half!

Another possibility is that your credit score dropped from the minimum your current card issuer required for the zero percent rate. Make sure you know what your credit score is by checking out GoFreeCredit.com.

Do you have a question you’d like answered? Drop by my contact form and send it on with the subject line “Reader Question” and I’ll answer it as best I can, both to you personally and on this site.

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Several months ago, I put Credit Sesame to work for me. Credit Sesame is an online program that scours the Internet and beyond to find better rates on mortgages, credit cards, or other debts you have. All you do is enter your information once and their system goes to work. The best part? It’s free … really, truly free. There was absolutely no cost and I didn’t even have to enter any credit card information!

Yesterday I was notified that the Credit Sesame system had recently evaluated 17,888 different scenarios and found several different mortgage loan refinance programs that I might be interested in. One was a 10/1 adjustable rate mortgage that would lower my payment by $137.22 per month with a 3.625% interest rate and another was a 30 year fixed mortgage with a 3.876% rate that would lower my payment by $65.88 each month.

Sign Up For Credit Sesame HERE. No Credit Card Required. Not a “trial offer.” Free. Really.

Obviously, for anyone considering an adjustable rate mortgage, you should be certain you won’t stay in your home longer than the term of the loan in most cases. You also need to consider closing costs when examining a mortgage refinance. The easiest way to think about mortgage closing costs is in terms of “payback.”

How to calculate mortgage closing cost payback

It’s really simple. Simply take your total closing costs and divide by your monthly savings. In the first scenario above (with the 10/1 ARM), closing costs are estimated by Credit Sesame to be $2,080 and with savings of $137.22, the payback period would be a little over 15 months. Obviously, some people will want to calculate interest lost during that year and three months but with savings account rates at one percent (and even CD rates at 1.3 percent), there isn’t much point … maybe $20 to $24.

The second example doesn’t have such a rosy payback period — not only is the payment savings much less, but the closing costs on a fixed rate loan are substantially higher (not sure why). Closing costs were estimated to be $3,849 and with savings of only $65.88 per month, the payback period would be a discouraging 58 months … almost 5 full years.

An important consideration when refinancing to a lower payment

Save your savings … at least a part of your savings anyway. If you aren’t careful, you’ll adjust your spending requirements to absorb every thin dime of your monthly payment savings.

Have you signed up for Credit Sesame yet? What are you waiting for? It’s FREE!

Links to products or services may be affiliate links. See my disclosure policy on the site or on my About page.

When it concerns your credit report and credit score, there are more myths floating around out there than you can believe. The biggest problem with a myth, is that when someone unwittingly believes one, convincing them otherwise can sometimes be difficult (though not impossible). I’ve often wondered why it seems easier to believe a myth than the truth, but that’s a topic for another day!

Here are 10 of the most common credit score and credit report myths I run into:

Myth: Checking my own credit report can hurt my credit score.

Truth: Personal inquiries appear as "soft inquiries" on your credit file and these soft inquiries are not displayed to others and are not used when calculating your credit score. So, monitoring your credit report and score to make sure your credit information is accurate will not impact your credit score. Get your free credit score from GoFreeCredit.com and see what the lenders use.

Myth: I don’t use credit so I don’t need to worry about my credit score.

Truth: Your credit history can impact decisions made about you when you buy a car or home, apply for insurance, rent an apartment and even apply for a job. Bear in mind that anyone with "permissible purpose" can obtain a copy of your credit report. They can be existing creditors, potential lenders, landlords, insurance companies, or law enforcement agencies. Potential employers can also obtain your report, with your permission. So be sure to check and monitor your credit report frequently so that you can promptly address any possible errors or fraud.

A FREE triple credit score? Free? You better believe it! Click HERE to get yours!!

Myth: My credit report reveals my income and what I spend my money on.

Truth: Your income and bank statements are NOT included on your credit report. The bulk of your credit report consists of information about your credit accounts – date opened, credit limit or amount of the loan, payment terms, the balance and your payment history. Also, your credit report contains a list of "inquiries" or requests to see your credit report and any bankruptcies, liens or judgments and debts reported by collection agencies.

Myth: When you get married your credit report is merged with your spouse’s to create a combined credit report.

Truth: I actually covered merged credit and marriage a few days ago. Since credit reporting agencies only maintain credit files on individuals, your credit file remains as your individual credit file when you get married … it isn’t merged with your spouse’s credit file. The only information that would appear on both you and your spouse’s reports would be joint accounts or those for which one spouse is an authorized user, or other items in both of your names, such civil judgments, liens and bankruptcies.

Myth: How I pay my bills is the only factor in my credit score.

Truth: Your payment history to existing creditors IS the single biggest factor determining your credit score … but it isn’t the only one. In most credit score models, payment history comprises 35% of your score. Other determining factors are: amounts owed (30%), length of credit history (15%), types of credit used (10%) and new credit inquiries or requests for your credit file (10%). So, it is a good idea to always at least make the minimum payment on time each month – and pay more when you can to decrease the amounts you owe.

Myth: Credit repair companies can clean up my credit report instantly.

Truth: Credit repair organizations cannot "clean up" your credit by removing missed payments, bankruptcies, liens and judgments from your credit history. There are typically no quick fixes because accurate and timely credit information generally can not be removed from your credit report. If you need help, consider contacting a reputable credit repair company or counseling agency to make a plan for paying off credit bills. And, beware of agencies that offer "quick fix" ways to get out of debt as they are often unethical and sometimes illegal.

Myth: No one can dispute what’s on their credit report.

Truth: You have the right to dispute information that you feel is being reported incorrectly on your Equifax credit file. The quickest and easiest way to initiate a dispute is online at Equifax.com – but you may also do so over the phone or through the US Mail. You should have a current copy of your Equifax Credit Report™ and your ten-digit confirmation number in order to complete this process.

Sign Up For Credit Sesame HERE. No Credit Card Required. Not a "trial offer." Free. Really.

Myth: Transunion, Equifax, and Experian determine if I get a loan.

Truth: The three credit bureaus DO NOT determine whether you qualify for a loan and at what rate. When you apply for a new loan or credit card, a lender may use the information in your credit reports to determine whether to lend you money and at what rate – based on their own risk criteria. The credit system allows consumers to acquire needed credit quickly and easily while allowing lenders to offer terms that correspond with the credit risk they’re willing to accept.

Myth: Closing a credit card account will improve my credit score.

Truth: Closing credit card accounts will not always have a positive impact on your credit score. As a matter of fact, closing credit card accounts may not always be a good idea for two reasons: (1) It can hurt your credit to debt ratio (2) It could also hurt of the length of your credit history if you close an older account. Also, don’t open new credit cards that you don’t need just to increase your available credit. This approach could backfire and actually have a negative impact on your credit score.

Myth: Consumers only have one credit score.

Truth: There are many different score models that can be used to calculate your credit score. But the triple credit score found at GoFreeCredit.com is used most often by lenders when determining whether or not to lend you money and at what rate. Further, lenders also may use a specialized scoring model to meet their specific needs. For example, an auto dealer might use an "auto adjusted" score model to add more weight to your auto loan payment history.

Links to products or services may be affiliate links. See my disclosure policy on the site or on my About page.