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Benefits of a credit card

23 August 2023Isabelle Coetzee 7 min read
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Despite the controversies surrounding credit cards, they can unlock a world of financial benefits. Improving your credit score, providing security, and rewarding you for your purchases are just a few ways credit cards can benefit your lifestyle. In this article, we look into the benefits of a credit card, offering valuable insights for both seasoned users and beginners.

A credit card is a widely accepted payment method that allows you to borrow funds from a lender up to a limit. Unlike a debit card, which withdraws money directly from your bank account, a credit card allows you to make purchases and pay back the balance over time with added interest.

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Credit cards are a convenient way to make purchases. A credit card allows you to borrow money from a financial institution to make a purchase. You then have a certain amount of time to pay that borrowed money, plus any interest and fees that may apply. While some may prefer to rely solely on cash or debit cards, credit cards offer many benefits.

Although there are many advantages associated with credit, it’s good to consider the risks involved before deciding to use it.

1. High-interest rates

A risk of using a credit card is that high interest rates can accrue over time, making it increasingly difficult to pay off the balance.  It's crucial to ensure you know the interest rates associated with your credit card and make timely payments to avoid any potential financial trouble.

2. Fees

Unfortunately, card fees can add up quickly, leaving you with a much higher balance than expected. From annual to late payment fees - these charges can quickly become a significant burden on your finances. It's crucial to consider these fees when choosing your credit card and to ensure you know what you may get charged before you decide to use it.

3. Temptation to spend

One significant temptation that carries big risks is overspending when using credit cards. While the convenience and flexibility of credit card use may be appealing, increasing your debt and interest charges is likely. Creditors often attract you with introductory rates, cashback incentives, and reward programs. Although these benefits are enticing, they may not justify the cost if they lead to overspending. You should maintain discipline and vigilance when using your credit card to prevent falling into debt.

4. Identity theft

One danger when using a credit card is the possibility of identity theft. Unfortunately, this concern affects many, with thieves taking advantage of credit card information to make unauthorised purchases and even opening new accounts in someone else's name. To protect yourself from fraud, monitor your credit card accounts regularly and report any suspicious activity immediately. Additionally, you may want to consider using a credit monitoring service or taking other steps to protect your personal information. Try using ClearScore Protect to monitor your credit accounts.

5. Damage to your credit score

Late payments and high balances can quickly damage your credit score, making it difficult to get approved for loans or credit cards in the future. It's crucial to use your credit card responsibly by making payments on time and keeping your balance low. By doing so, you can reap the benefits of a credit card, such as earning cash back or rewards, without risking damage to your credit score.

Despite the dangers associated with using a credit card, there are many benefits that you can enjoy when you use your credit card wisely.

1. Building your credit history

Using a credit card can be one of the most effective ways to build your credit history. By using the card responsibly, paying on time, and keeping your balance well below the credit limit, you can demonstrate to lenders that you’re a responsible borrower.  Additionally, by using your credit card regularly and responsibly, you may be able to increase your credit limit over time, which could further improve your credit score and report.

2. Easier to manage your finances

A credit card can be an essential tool for managing your finances more efficiently. With a range of benefits, it can make it easier to keep track of your expenses and budget more effectively. One of the main advantages of a credit card is that it can provide a clear record of your spending, allowing you to monitor your money and identify areas where you can make savings.

3. Convenience

The convenience of using a credit card cannot be overstated. Apart from purchasing items and services without physically carrying cash, a credit card also allows you to shop online. It can offer protection against fraudulent transactions, as most credit card companies offer fraud monitoring and the ability to track purchases online. It makes it easier for you to manage expenses and budget accordingly.

4. Security

One of the most notable benefits of a credit card is its security. Unlike cash or debit cards, credit cards come with consumer protection policies that work to safeguard your account against fraudulent purchases. For instance, if you notice an unauthorised transaction on your statement, simply report it to your card provider by logging a dispute, and they should take the necessary steps to resolve the issue and possibly cover the loss. This type of fraud protection is not only a great perk, but it also gives you more peace of mind when you make purchases.

5. Access to emergency funds

One of the key benefits of using a credit card is having access to emergency funds. A credit card can provide a cushion for unforeseen circumstances or unexpected expenses. It can be useful for emergencies like car repairs or medical bills. With credit cards, you can often have a higher credit limit than you might have through a traditional savings account. It can provide peace of mind and financial security.

6. Travel benefits

Using a credit card while travelling can be most beneficial, especially for obtaining rewards and getting valuable discounts. Many credit card providers offer complimentary travel insurance, purchase protection, and other benefits such as lounge access and complimentary night stays at top-class hotels. Additionally, by using a credit card to pay for travel expenses such as flights or rental cars, you can get reward points that can be redeemed for future travel cost reductions. Using a credit card also provides more security than using cash alone, as cash can be easily lost or stolen. Thus, when it comes to travelling, the benefits of a credit card are many - from rewards and savings to added security and peace of mind.

7. Shopping discounts

Shopping with your credit card not only helps you better manage your finances and build credit, but it also offers a wealth of benefits that can make your shopping experience more rewarding. With credit card rewards, you can earn cash back, points, miles, and other incentives that you can redeem for travel, merchandise, or even statement credits. Some credit cards also offer extended warranties, purchase protections, and other valuable benefits that can give you added peace of mind when shopping. Additionally, many credit cards come with less fraud liability, meaning you may not get held responsible for unauthorised purchases.

Credit cards can be incredibly beneficial when used responsibly. Not only can it help with building credit history, but it also provides added convenience in making purchases online or while travelling. When applying for a credit card, it's important to research and find a card that aligns with your financial goals and needs. To apply, you typically need to provide personal information such as your name, address, income, ID number, and credit report that contains your credit score and history. While the process may vary between different credit card providers, it's important to read the terms and conditions carefully before submitting your application to avoid any problems down the road.

These tips may help you better manage your finances when using a credit card.

1. Pay your balance in full each month

This will help you avoid paying interest and late fees, which can add up quickly. Additionally, paying your balance in full will help you build a strong credit history, which can open up more opportunities for you in the future.

2. Set up automatic payments

Automating your payments ensures you never miss a payment and helps you stay on top of your finances. You can set up automatic payments through your bank or credit card issuer's website or app.

3. Monitor your spending

Check your account regularly and keep track of all purchases so that you know exactly where your money is going each month.

4. Avoid cash advances

Cash advances are expensive compared to regular purchases. It’s best to avoid cash advances if possible because they may not count towards any rewards programs offered.

5. Use rewards programs wisely

If your credit card offers rewards programs such as cashback or points, take advantage of them as much as possible without overspending or getting into debt. Read the terms and conditions associated with the program to understand how it works and how to maximise its benefits without incurring unnecessary costs or fees.

6. Be aware of fees

Finally, make sure that you are aware of any fees associated with using your credit card -  annual fees, late payment fees, foreign transaction fees, etc. so that you can avoid them if possible or at least plan for them ahead of time.

Isabelle Coetzee Image

Written by Isabelle Coetzee

Freelance Copywriter

Isabelle is a freelance finance writer and journalist in Cape Town. She helps make managing your personal finances calm, clear and easy to understand.