Credit Cards: Evil Traps or Useful Tools?

Your credit scores are arguably the most important numbers in your life. After all, credit has an impact upon you when you apply for a mortgage, try to finance a vehicle, open a new utility account, and credit may even impact you when you apply for new insurance policy. In fact, building healthy credit scores is so important that you should consider it to be one of your top wealth building priorities. Building healthy credit scores is right up there on the financial importance scale with becoming debt free and saving for retirement.

In order to establish healthy credit scores, you have to prove to the credit bureaus that you can manage credit responsibly. One of the best ways to prove that you can manage credit responsibly is to open credit card accounts. However, for many people it can be very intimidating to have open credit cards. If you have ever made credit mistakes in the past or if you have ever overextended yourself financially and found yourself underneath a crushing load of debt then it is understandable why you may be a little gun shy where credit cards are concerned.

It can be very tempting to avoid credit cards all together if you have ever made credit card management mistakes in the past. Unfortunately, avoiding credit cards is likely to have negative repercussions where your credit scores are concerned. What you need to remember is that credit cards themselves are not evil. A properly managed credit card offers customers a lot of great benefits. Here are a couple of the best ones:

1. Fraud protection – If someone steals your cash, you have no reliable way to get your money back. If someone steals your debit card, your personal money is at risk rather than the bank’s money. If someone steals your credit card then the bank’s money is at risk, not your own.

2. Credit Building Possibilities – If you keep a $0 or very low balance on your credit cards and you always make your payments on time then you have the potential to receive a great increase in your credit scores. The longer you manage your credit cards correctly, the better the impact to your credit scores.

Those who are determined to live a “plastic-free” life with a cash only payment mentality will wind up paying more money in the long run than those who have credit cards but manage them properly. Remember, credit cards are not evil or bad. Racking up a ton of credit card debt by overusing your credit cards is bad, but can easily be avoided if you manage your credit cards properly.

Properly managed credit cards can be a powerful tool to help to build your credit scores. An individual with no credit scores (or low credit scores) will likely pay more for car insurance, home insurance, and utility deposits. Plus, while it would be nice to pay cash for a house, most of us have to take out a mortgage to purchase one. Without good credit scores you can expect to either be turned down for a mortgage or to pay a higher interest rate. A higher interest rate on your mortgage could cost you tens of thousands of extra dollars over the life of the loan.

Remember, just because you have low credit scores does not mean that you are a horrible person. Low credit scores simply mean that either you have made credit management mistakes in the past or that you have been the victim of unfortunate circumstances. Either way, you deserve a second chance and you can absolutely make a plan to begin rebuilding healthier credit again today. However, swearing off the use of credit cards is not a good strategy.

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Michelle Black is an author and leading credit expert with over a decade of experience in the credit industry. She specializes in the areas of credit reporting, credit scoring, identity theft, budgeting, and debt eradication. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Facebook here