Are Credit Cards Worth It? 5 Ways Credit Cards Can Help You Financially

Credit cards may not be the top-recommended solution when it comes to financial management, but they can be useful in a pinch.

While it may seem like paying with cash and debit cards provides an easier way to stay on budget, credit cards have a way of helping people who are strapped for cash. When used responsibly and conscientiously, credit cards are worth having.

Here, you will learn the five ways credit cards in the UAE can help you make the most out of your money and maximize your savings.

With smart use of credit cards, you can:

1.   Build a Good Credit Score

Your credit score is a record of your financial activity. It is often checked and used by lenders when deciding whether to approve a loan decision or not.

A portion of this score is based on your credit card history. Since you’re borrowing money by using your credit card for your expenses, you’re leaving footprints for lenders to find. And these footprints – when left with the most earnest intentions and consistent payments – work well in improving your credit score immensely.

In contrast, debit cards aren’t recorded by credit bureaus, which means they don’t help you build or improve credit scores, no matter how frequently you use them. Even secured cards – or credit cards acquired after depositing funds to the bank – are more useful in helping you establish yourself as a good payor and qualify for larger loans in the future. If you have a low credit score in the US but a good score in your home country, consider using a credit card for immigrant solution like Zolve that can help you with your credit history.

Take note: As mentioned earlier, this works on the premise of responsible credit card use. This means you’ll need to be a good and consistent payor to build a good credit history.

2.   Get More Value with Rewards Programs

One way that banks and credit card providers encourage loyalty from their clients is through rewards programs, so why not take advantage of these?

Many credit cards offer different incentives, but some give more than others. One example is the platinum credit card.

Platinum cards provide extensive rewards for consumers. This type of credit card is the top-tier credit card available in most places.

Considered the premium credit card, platinum cards also have higher credit limits. And, as mentioned earlier, most of these have lavish rewards programs that typically offer the following benefits:

• Uncapped point-earning capacity
• Complimentary perks (e.g., international travel insurance, accident insurance, and the like)
• Price protection guarantee and purchase protection insurance
• Concierge services

But because these cards are premium, they also come at a premium (i.e., high income required) and are usually reserved for those with a good credit rating. This is why you need to weigh all your options with your needs and capacity to pay first before you apply for platinum credit cards.

3.   Enjoy a Grace Period for Your Expenses

When you pay cash or use your debit card for your purchases and other living expenses, your money is gone immediately. But when you make these payments with a credit card, you can still have your money in your account until it’s time to pay for your credit card bill.

In short, you get to keep your money longer when you use a credit card.

But how does this help you? Holding onto your funds within this “grace period” is useful in two ways:

• First, the payment you make will be a bit cheaper when it is delayed due to the time value of money. No matter how tiny it may be, those days when your money stays in your savings or checking account allow it to grow with interest.
• Second, paying with your credit card grants you more flexibility in using your cash.

4.   Make Your Purchases Safer

Besides legitimate purchases, you can also save yourself from a lot of trouble with your credit card if you become a victim of fraud.

You see, when a thief steals your debit card credentials and uses them, your money instantly disappears from your account. From this, a chain reaction begins. Legitimate expenses and mailed checks bounce, leading to insufficient funds charges. Creditors become unhappy with the payments you missed, which could also lower your credit score.

But if it was your credit card, you won’t be out of money. You’ll need to notify your credit card company about the fraudulent charge, but you won’t have to pay for the transactions while investigations are underway.

5.   Improve Your Budgeting Capacity

Did you know that your credit card can also help you improve your budgeting capacity? Thanks to monthly statements, you can keep track of your expenses both online and in brick-and-mortar stores.

You see, each purchase made using your credit card has all the crucial information you need for better budgeting, including where, how much, when, and how frequently you’re spending your money. You can even look back at your spending history as some companies keep your records for years.

Besides making you a bit wiser with every payment, these records also become quite useful when it’s time to pay your taxes. Last year’s records can be compiled and used for calculating the amount you need to pay for taxes, mostly if you use your card for business transactions.

The Key: Smart Use of Credit Cards

While not everyone may use credit cards, the fact remains that these cards do carry a lot of perks. Ultimately, how you use your card determines how you can make the most out of it.

AUTHOR BIO

VenkatMahadevan is currently the head of the Wealth Management and Branch Banking business for Citi’s Consumer Bank in the Middle East. He has 30 years of experience in banking and in Citi, having spent most of his career in various roles in consumer banking and especially in Wealth Management. He also has extensive experience in the various aspects of Off-shore Wealth Management. He has worked with Citi in India, USA and Singapore prior to moving to the UAE.