Swearing Off Credit Cards May Be a Bad Thing
Credit cards have sort of a bad reputation, which isn’t completely the fault of the credit card itself. Often, people get themselves into credit card trouble by mishandling them. Nevertheless, that bad reputation has many people swearing off cards so as to avoid debt. However, avoiding credit cards can have other negative consequences.
Difficulty Building a Good Credit Score
Your credit score is based primarily on your history with debt instruments like credit cards and loans. Several companies use your credit history to make decisions about you including insurance companies, utility service providers, and even some employers.
Building a good credit score without a credit card is possible, but more difficult since it's hard to borrow a loan without an established credit history. Plus, 10% of your credit score is based on you having experience with various types of credit including credit cards and installment loans. Without a good mix of credit, your credit score may be stifled.
Rentals and Reservation Hassles
Using a credit card lets you avoid much of the hassle involved with car and hotel reservations. For example, renting a car is considerably more difficult without a credit card. Not only will you have to pay a security deposit (sometimes a hold is placed on your account funds), you may also have to provide proof of residence and other documentation to prove your credibility.
Speaking of car rentals, your credit card may come with a collision waiver that lets you turn down the collision insurance rental companies try to sell you.
Less Purchase Protection
Many major credit cards give you additional purchase protection beyond what the retailer provides. For example, if you purchase an item that later breaks or malfunctions and the retailer refuses to give you a refund, the card issuer may credit your account for the purchase.
You generally have 60 days from the date of the billing statement with this charge to make the dispute. You don’t get the same protection with cash, check, or debit card purchases.
Less Fraud Protection
Using your debit card on the internet and especially storing the card number for future use on places like iTunes or Amazon.com is dangerous. Systems are hacked more frequently than you realize, exposing your sensitive personal and financial information.
Most credit and debit card fraud transactions are reversed if the thief uses your card number and the card is in your possession. However, with a debit card, you have to wait for the bank to handle your fraud claim until your funds are available again. So, for example, if a hacker drained your checking account, you’d essentially be broke until the bank refunded the money.
With a credit card, on the other hand, your everyday funds are left untouched in event of fraud. Once you dispute a fraudulent credit card charge, you’re not responsible for any disputed charges (unless the bank determines the charges weren't fraudulent after all).
Credit Cards Aren’t Inherently Bad
While many credit card users may end up in debt, it’s not necessarily because credit cards are a bad thing. To avoid the debt trap with credit cards, you must follow the basic rules of spending no more than you can afford and paying your balance in full each month.