Lyle Daly* says a credit card can be your best friend or your worst enemy, depending on what you are using it for.
You might think the question “why do you own a credit card?” would have an obvious answer.
It’s a payment method, so you use it to pay for purchases.
Although that’s one reason to have a card, it’s far from the only one.
When we surveyed adults on why they had credit cards, they gave us over a dozen different reasons.
A lot of these reasons were smart and responsible, but there were also some that could prove problematic and cost consumers a lot of money.
That’s why we’re going to dive into the best and worst reasons to have a credit card, based on the results of our survey.
The best reasons to have a credit card
Our survey was full of savvy consumers who were using credit the right way.
If you’re using your credit card for any of the reasons below, then you can give yourself a pat on the back.
After each one, we’ve included the percentage of consumers who said it was one of their reasons for getting a credit card.
To build credit history (64.4 per cent).
Your credit history and score can have a huge impact on your life, and a credit card is an effective way to improve them.
By using a credit card every month and paying the bill by the due date, you can build a high credit score, which can help you get low rates on loans, qualify for rental homes or even jobs, and more.
To earn purchase rewards (48.4 per cent).
With the rewards rates on the top cash-back cards and travel rewards cards, a credit card can get you quite a bit of value back on your regular spending.
The convenience of not having to carry cash (41.9 per cent).
A credit card is a much more convenient payment option than carrying cash around.
With cash, you need to go to the ATM any time you run out, and if you lose your wallet, then you also lose whatever cash is in it.
To help manage a budget (23.6 per cent).
Everyone should have some sort of budget.
It’s a lot easier to manage that budget if all/most of your transactions are made with the same payment method and are easy to track through online statements.
Many popular credit cards will even break down your spending into different categories for you.
Fraud protection (22.9 per cent).
Credit cards are a more secure payment method than debit cards or cash.
In the event someone makes fraudulent purchases with your credit card, the most you can be legally liable for is $50, and that’s only if you don’t tell your card issuer that the card was lost or stolen before the charges are made.
Several card issuers have zero-liability policies for fraudulent transactions.
Balance transfer/debt consolidation (17.8 per cent).
There are quite a few balance transfer cards with 0 per cent intro annual percentage rate (APR) offers, which are a smart way to pay down debt.
The sign-up bonus (15.0 per cent).
The biggest credit card sign-up bonuses can be worth hundreds of dollars, so if you’re planning to get a new card anyway, then it makes sense to see if you can get a nice bonus out of it.
To waive foreign transaction fees (6.3 per cent).
For international travel, there’s no reason to pay an extra 3 per cent on every transaction, given how many credit cards allow you to avoid this fee.
The worst reasons to have a credit card
Some motivations to have a credit card can put you at risk of future financial troubles.
If you have a card for any of the reasons below, then you may want to reconsider.
To make purchases you otherwise couldn’t afford (35.9 per cent).
Some consumers fall into the trap of financing purchases with their credit card, which often results in credit card debt.
Look at it like this: Sure, it may be tempting to buy what you want right away, but you end up paying extra for it every month that you get charged interest.
Cash advances (7.6 per cent).
Unless there’s a huge emergency and you have no other option, you’re better off forgetting that you can even get a cash advance with your credit card.
The interest rates on credit card cash advances are very high, and you start getting charged interest on your advance right away.
The exclusive status of premium credit cards (3.9 per cent).
Considering that premium credit cards tend to have the highest annual fees, it’s a bad idea to get one solely to impress people with your sleek titanium card.
If you can actually make the most of the card’s perks, then that’s a different story.
Using credit wisely
Fortunately, the stats show that far more consumers have their credit cards for good reasons than for bad ones.
And of all the worst reasons we found, only one was particularly common among consumers.
To make sure your credit card use doesn’t come back to bite you, stick to using your cards for the smart reasons listed above.
* Lyle Daly is a personal finance and travel expert at The Ascent.
This article first appeared at www.fool.com/the-ascent.