Why is it important to have a credit card?

Answer

Credit cards can be very useful tools for building credit, when used responsibly. There are some things you can't do without a major credit card. Rent a car, reserve hotel rooms, etc. Unfortunately, even responsible, ethical people fall into the credit card pit. And that pit can be deep and expensive, financially and emotionally.

Answer

Excellent answer by Nikki. Consumers need to be aware of the advantages/disadvantages of revolving credit accounts and how they affect their credit scores.

It is important to establish both revolving (credit cards) and installment (car and house loans) accounts and show a long history of paying these on time in order to get the credit needed to purchase a home.

2 to 4 revolving accounts managed in the following manner will build your credit scores. The accounts need to be established early in life and ALWAYS paid on time, regardless of whether or not get a bill. The balance should be kept under 30% of the available credit (the credit limit). Your score will reflect someone who is living at the lower end of their means, instead of the upper end.

For the purposes of credit; it does not matter whether you pay a credit card bill off entirely every month or pay the minimum balance, as long as you pay it on time. It is a completely different situation regarding the money you will pay in interest and fees.

Most consumers are one disaster away from total financial ruin. Life happens to everyone. Imagine yourself with 2 to 4 credit cards, with 30% debt charged on them (which is a much lower percentage than most Americans carry). Now imagine what you will do if your child gets sick, your house burns down, you get laid off, or a hurricane blows through town. Most people are going to prioritize, you probably will to. So be prepared. Don't use credit cards for emergency funds, for seasonal shopping, for anything except to build your credit. Save your money for those inevitable emergenices.

Revolving accounts need to be used every month and paid on time every month. So use them for something you must purchase anyway, like one tank of gas, or a small meal. Then you won't have even 30% of debt when your emergency happens. Pay off your $20-%35 dollars of gas money and go on with your life, knowing that you will be able to borrow when you need to and have excellent credit.

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