The Pros & Cons of Owning a Credit Card
A credit card allows the holder to make purchases without any cash payment. This provides convenience and the ability to purchase items for which the credit card holder does not have enough cash. However, a credit card can also lead to hefty debts that the holder cannot afford to repay.
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History
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One theory on the origins of credit cards says that a banker in Brooklyn from the Flatbush National Bank created the first credit card and named it "Charge-It." A customer used the card to make purchases at local retailers, who then deposited the sales slips at the bank to get the money. The bank then billed the customer. This program provided convenience for the bank customers and extra business for local merchants. Over time, other financial institutions began offering credit cards.
Convenience
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A credit card provides the holder with convenience. The holder does not have to carry cash with him, letting him travel lightly and safely. Moreover, some retailers only accept payments by credit card, giving the credit card holder more purchasing options. Credit cards can also help the holder pay for unexpected bills or emergencies when he does not have enough money to pay for them. Some credit cards also offer loyalty benefits such as discounts, rewards and cash-back offers.
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Debt
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A credit card allows the holder to spend more money than she has, possibly leading to unnecessary purchases. If she does not pay the credit card bills on time, the debt could accumulate. Credit cards usually have high interest rates, so the amount of money owed continues building up if the holder doesn't pay the bill in full each month. The credit card holder could end up paying much more than the actual price of the purchased item because of the fees and interest that come with the card.
Safety
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A credit card holder can travel without carrying cash, making it less likely that he will lose large amounts of money due to theft. If theft occurs, he can cancel his credit card, preventing the thief from misusing the card. However, credit card holders can fall victim to identity theft, allowing the thief to use the stolen identity to make unauthorized purchases. Depending on the credit card provider, the victim might be able to recover her losses from the provider.
Credit Score
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A person's credit score indicates how responsible she is with money and debt. The way a person handles credit card debt is one of the factors used to compute the credit score. Credit score determines whether a person gets a loan, the amount she can borrow and the interest rate she pays on loans. If a consumer pays her credit card bills on time, her credit score would improve, giving her access to loans with lower interest rates. On the other hand, if a consumer has a large credit card debt and does not handle the bills responsibly, she could be denied loans or even insurance coverage based on her poor credit performance.
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References
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