Credit card: Do You Really Need a Credit Card?

Do You Really Need a Credit Card?

By Miriam Caldwell, About.com Guide

See More About:

• credit card myths
• emergency credit cards
• rewards cards
• building credit

There may be many people who suggest that you get a credit card, but before you do you should carefully decide whether or not you really need a credit card. The answer is that you can get by without a credit card. Although a credit card can be a useful tool, when used properly (paid in full every month), it can be a bigger liability than an asset. Here are five common misconceptions about needing a credit card.

1. I Need a Credit Card to Build Credit

You build credit by paying your bills on time. You can build enough credit to qualify for a home loan by paying your rent on time for several years. You destroy your credit when you do not pay your bills on time. The utility companies and other businesses can send you to a collection agency if you do not pay on time. You do not need a credit card to build your credit history. You may find it a little easier to do with a credit card, but you should be very careful as you try to do so.

2. I Need a Credit Card to Shop Online or Rent a Car

Since debit cards have been introduced you no longer need a credit card to do these things. In fact you can do everything with a debit card that you can with a credit card, except spend money that you do not have. You should not be doing that anyway. Debit cards can be used anywhere a credit card can. This completely debunks the statement that you need one to rent a car.

3. I Need a Credit Card for Emergencies

If you plan well you should set up an emergency fund for emergencies. Your emergency fund should have at least $1000.00 in it, but you should try to have three to six months of expenses saved up. This much money should be able to handle any emergency that comes your way. If you are stranded on the road and need to be towed you can use your debit card to pay for the tow, and your emergency fund to cover those expenses.

4. I Need a Credit Card to Save Money on My Purchases

Many stores will offer discounts for having a store credit card. Stores do not offer cards to give you discounts; they offer cards because they realize that while most people intend to pay the card off every month, few actually do. They make more back on interest than they the discount they offer to you.

5. I Need a Credit Card to Earn Rewards

This is a dangerous game to play. If you are responsible and pay off your balance in full each month, you may consider having a rewards credit card. You should make sure that you have a credit card with no annual fee. Additionally it is important to remember that the credit card offers its rewards, because the company realizes that most people are not going to pay off their credit cards in full each month. This means that they make more money off the customers, then rewards they give out.