Having a credit card has some financial benefits, giving you the ability to borrow money when you have no cash on hand. It also provides you a backup to pay for unexpected expenses. However, a credit card does carry some hazards, especially if you use it irresponsibly.
Perhaps the most common and significant hazard of having a credit card is the self-inflicted wounds you incur from undisciplined use. Using a credit card for non-essential, routine purchases and not paying off the balance promptly is not financially sound. By the time you pay interest on your credit card balance, your deals aren't so great. Running up high balances is also bad for your credit and makes it difficult to keep up with payments. If having access to a high credit card limit does not jive with your financial behaviors, consider requesting a lower limit or other ways to reduce your use to help keep your spending in check.
Your credit rating is an assessment of your financial credit worthiness. Lenders use your score to decide whether to give you a new loan and at what interest rate. Maintaining a high debt-to-limit ratio, making late payments or going over your limit all negatively affect your credit. The problem with bad credit is that when you need to buy a house or car or get another type of loan, you will have to pay higher interest rates, assuming you get the loan at all.
In the Internet and mobile technology age, credit card and identity theft have become commonplace. Credit card companies are trying to improve their technology to stay ahead of criminals; however, top credit card thieves still find ways to get your card information, even through electronic scanning devices. They do not even have to get your physical card to steal your card details and spend your money. A thief can rack up charges, damage your credit and create a major financial hassle for you. A card with strong fraud detection prevention services can offset some of these risks.
Having a credit card adds a new dimension to your financial management process. Managing a budget with the money you actually have is challenging enough. When you add a credit card balance, you have to budget for monthly credit card payments and have discipline in making payments on time. Multiple cards enhance this stress. In addition, financial strain is a common problem in relationships because couples often differ on whether to use a card and how to use it responsibly.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.