What Is the Advantage of Using a Credit Card? Basics Explained
In Q4 of 2022, the total number of credit card accounts in the U.S. reached 166 million, encompassing over 518 million cards in total. These striking figures underscore the profound integration of this payment method into our daily lives.
Credit cards are widely accepted and convenient, making them an indispensable tool for accessing credit and managing certain transactions. If used responsibly, they can provide a range of benefits for cardholders’ financial well-being.
If you're considering getting a credit card, read this article to learn about its basics. We'll answer the following questions:
- What is the advantage of using a credit card?
- What is the disadvantage of using a credit card?
- How can you use a credit card responsibly?
What Is the Advantage of Using a Credit Card?
Owning a credit card has numerous upsides, which is why so many people opt for it. Among other things, a credit card:
- Helps you cover emergency expenses
- Can offer you rewards
- May save you money in the long run
- Allows you to build credit score
- Protects your finances in case of fraud
- Makes it easier to dispute charges
Credit Cards Help You Cover Emergency Expenses
A credit card gives you access to the bank’s credit line. Unlike debit cards, which draw funds from your checking account, credit cards allow you to borrow money from the bank up to a certain limit and pay your balance at a later date. They provide a financial safety net if you don’t have enough savings to cover large or emergency expenses, such as:
- Medical bills
- Car and home repairs
- Travel expenses
- Legal fees
While borrowing money from the bank comes with additional costs in the form of interest rates, you are eligible for a grace period if you pay off your credit card balance regularly. The grace period grants you an interest-free timeframe, alleviating the expenses you have to cover on your credit card. You can take advantage of the grace period by:
- Making new purchases after covering the credit card bill for the previous month
- Paying the balance before the interest payments for the next billing cycle kick in
Covering your credit card balance within this period entails earning rewards and benefits on your credit card without losing any funds on interest payments, which can accumulate to a decent sum over time.
This benefit applies only if you pay off your balances in full each month before the end of your grace period, though. If you don’t, you’ll not only lose the possibility to save money but also the grace period. In other words, you’ll start accruing interest on every new purchase you make.
Credit Cards Can Offer You Rewards
One of the most notable benefits credit cards offer consumers is the rewards. Take a look at the table below for an outline of the various types of rewards cardholders may earn:
Credit cards offer a wide range of rewards programs tailored to different preferences. Take the time to compare options and select a card whose rewards align with your spending habits.
Credit Cards Allow You To Build Credit Score
Credit card issuers report your usage habits to the credit bureaus, particularly paying attention to factors such as:
- Credit utilization ratio (the percentage of the total available credit you’re using)
- Payment history
- Length of payment history
- New credit inquiries
The bureaus use the above metrics to calculate your credit score—a measure of your creditworthiness and reliability. If you use your credit card responsibly, i.e., pay your bills on time and avoid carrying high balances, your credit score will be favorable. In turn, you’ll have a better chance of securing loans, low interest rates, and premium credit cards in the future. Many credit card issuers provide credit score monitoring services for free.
Credit Cards Protect Your Finances in Case of Fraud
The Fair Credit Billing Act is a law that protects consumer credit cardholders from wrongful billing, such as undelivered or damaged goods and fraudulent transactions. This law limits your liability to $50 in case of credit card fraud, provided you meet certain conditions. However, most credit card issuers also have zero-liability policies, ensuring you’re not held responsible for any charges in case your credit card is stolen or misused.
Debit cards are governed by a different law, and debit card users may not enjoy the same level of protection as credit card users. Additionally, when a transaction is made using a debit card, the funds are immediately withdrawn from the user's checking account. In contrast, credit card users have not yet remitted payment for the transaction.
Credit Cards Make It Easier To Dispute Charges
If you purchase a faulty item or receive subpar services from a contractor, you can ask the credit card issuer to withhold the funds. Additionally, credit cards typically come with extended warranty and purchase protection, which offers time-limited coverage against damage, loss, or theft of eligible items. That’s one of the reasons they’re a popular choice for larger purchases. In most cases, the card issuer can also help you resolve disputes with the merchant.
What Are Some Disadvantages of Using a Credit Card?
Credit cards come with certain responsibilities, which you need to be aware of before applying. The main limitations of credit cards are that they:
- Often entail fees and hidden costs
- Can lead to debt if used irresponsibly
- Are often targeted by hackers and thieves
Credit Cards Often Entail Fees and Hidden Costs
Owning a credit card can come with many fees, including:
- Annual fee
- Balance transfer fee
- International transaction fee
- Cash advance fee
- Late payment fee
- Over the Limit fee
Cards that offer generous rewards programs typically require a higher annual feel than usual.
Credit Cards Can Lead to Debt if Used Irresponsibly
If you overspend and don’t pay your dues in full and on time, you can get into serious trouble. You can accrue debt with this habit, which will only grow bigger over time. Failing to pay your debt will result in an array of financial difficulties, including high interest rates, a credit limit reduction, and credit score damage. In the case of significant debt, the issuer might even block your card and pursue legal action to recover the owed amount.
Due to these factors, many people prefer using debit cards for everyday expenses. Although they don’t offer comparable rewards and liability guarantees, debit cards are a safer option for managing your budget because they allow you to spend only what you have available in your account at the time. If you’re having a hard time tracking your expenses and keeping up with monthly payments, it’s best to use a debit card for everyday purchases.
Credit Cards Are Often Targeted by Hackers and Thieves
The credit and debit card fraud protection policies only address financial losses after the fact. They don’t protect your card data from being stolen.
If a fraudster gets hold of your financial information, they can make unauthorized purchases, sell your data on the dark web, or even apply for loans in your name, causing significant financial, reputational, and legal repercussions. Some types of identity theft can be particularly challenging to prove, requiring a long and tedious investigation process.
For the above reasons, the best course of action is to prevent your card data from being stolen in the first place. You can do that by avoiding purchases on sketchy websites, enabling two-factor authentication, and using virtual cards.
How Virtual Cards Protect Your Financial Information
In 2022, 44% of credit cardholders claimed to have experienced two or more fraudulent charges, up from last year’s 35%, according to Security.org. Amidst the increasing prevalence of credit and debit card fraud, it’s essential to practice caution.
If you use your real debit or credit card number to shop online and a data breach occurs on one of the websites, your financial information could become compromised.
Instead, you can use a virtual card—a unique, randomly generated 16-digit card number with its own expiration date and security code. A virtual card is connected to a funding source, such as your debit card or bank account, but masks your real payment information during online transactions. If a breach occurs on a vendor’s servers, hackers can only access your virtual card number while your real card and bank information remain protected.
Many banks provide virtual cards, but few offer as many benefits as Privacy. If you are a U.S. resident over 18 years of age and have a checking account at a U.S. bank or credit union, you can generate Privacy Virtual Cards and unlock numerous security features and card management tools.
Secure Your Card and Banking Information With a Privacy Virtual Card
Connect your bank account or debit card to Privacy and generate a Privacy Virtual Card to add an extra layer of protection to your online transactions. Privacy Cards are compatible with most shops and websites that accept U.S. credit or debit card payments.
Privacy Virtual Card—Safer and Faster Shopping
With Privacy, you can leverage two types of virtual cards:
- Merchant-Locked—This type of card works only with a specified vendor, which makes it a suitable option for recurring payments. Even if a hacker gets hold of the card, they can’t use it anywhere else.
- Single-Use—This type of card closes automatically a few minutes after the first purchase, rendering it useless to potential hackers. It’s ideal for shopping on new or questionable websites.
You also have many other useful features at your disposal:
- Spending limits: Set spending limits on your Privacy Cards to stay in control of your budget and prevent sneaky merchants from overcharging you.
- Pausing or closing your virtual cards: You can pause or close your virtual card without affecting your card or bank account. Privacy will decline all further transactions on a paused or closed card, which is especially convenient if you want to halt charges from subscription services you no longer need.
- Browser extension: Get the Chrome, Firefox, or Safari browser extension and have it autofill virtual card details for you at checkout. You won’t have to get your wallet or manually type in the numbers, saving you time when you want to make a quick and spontaneous purchase.
Mobile app: Create new cards and use them wherever you are with the iOS or Android app. Enable push notifications to get alerted every time a card is used or declined, which allows you to detect potentially suspicious activity timely.
How To Get Your Privacy Virtual Card
The process is simple and entails four steps:
- Fill out the details required to verify your identity
- Add a funding source (debit card or bank account)
- Request a Privacy Virtual Card
With the basic plan, you can request 12 virtual cards a month for free. You can also set spending limits, pause, unpause, and close the cards, and access the browser extensions and apps.
Opting for one of the paid plans will provide access to features such as:
- Additional monthly cards (up to 60)
- 1% cashback on eligible purchases (totaling up to $4,500/month)
- Priority support
- No foreign transaction fees
Privacy is bank-agnostic and connects with most U.S. banks.