If you’re scared of credit card debt, you’re not alone: One-third of Americans say they’re afraid of maxing out a credit card, and one-third of millennials say their greatest fear is having credit card debt.
But when used wisely, credit cards can offer benefits that you simply won’t find with cash or debit cards. Once you understand the fundamental principle that credit is not free money, there are several reasons you may prefer to pay with a credit card the next time you go out or make a purchase.
1. Paying with credit can build your credit score.
You may have heard horror stories about people who cratered their credit scores by abusing credit cards. But the opposite is also true: If you use credit carefully, it can bolster your credit score. By maintaining a track record of responsible credit usage, you’ll see your credit score increase in the months and years to come.
The key, according to Experian, is to always pay your credit card bills on time and keep a low credit utilization ratio, which is the amount of credit you use compared to your credit limit. For example, if your credit card limit is $10,000, avoid using more than about $1,000 (or 10 percent) of your credit in a given month.
2. Credit card purchases can earn you cash and other benefits.
These days, there’s a rewards credit card for every type of person: Do you want to earn cash back on all your purchases? How about miles toward your next international flight? Or what about a card that rewards you at a higher rate for purchases in certain categories, like groceries or gas?
If you regularly use your credit card for day-to-day purchases, you can quickly rack up cash or rewards that translate into free flights, hotel stays or gift cards to your favorite retailers.
3. Credit cards offer extra safety features.
Most debit cards can’t compare to credit cards when it comes to safety and fraud protection. Credit cards aren’t linked directly to your checking account, and they tend to offer technology that helps prevent fraud, along with policies that ensure you won’t be on the hook for any fraudulent charges. Carrying a credit card is also less risky than traveling with large amounts of cash, which you can’t easily recover if it gets stolen.
If you’re uneasy about using credit cards, start with baby steps: Even a few small purchases that you pay off in full each month can gradually build credit and earn you rewards.