What Should I Use My Credit Card For?

A credit card can be an invaluable tool. It’s difficult to rent a car or hotel room without one, not to mention the benefits of rewards and the chance to build your credit history. But just because you have a credit card doesn’t mean you have to use it all the time. There are some situations where it could make sense to forgo using your credit card.

Here are some of the pros and cons of using your cards for everything, what happens if you don’t use your credit card, and things to keep in mind when making purchases with your card.    

Though you might run into some limitations if you’re trying to buy a money order or a gift card, it’s possible to use your credit card for most purchases. Here are some situations where it’s fine to use a credit card, as well as some scenarios where you may want to use an alternate form of payment.

Using a credit card can come with an array of benefits. Here are some pros to using a credit card:

• To maximize rewards potential: With rewards cards, the more you use your credit card for eligible purchases, the faster you’ll earn points, miles, and/or cash back. Some cards even offer incentives to swipe more, like extra points for using your card 20 times a month. Just be sure to pay attention to whether your card has a monthly, quarterly, or yearly rewards limit.
• To strengthen your credit score: Regularly using your credit card responsibly may help you to build your credit score over time. However, it’s important to keep a low credit utilization ratio and ensure that you make at least the minimum payment on time every month.
• To reduce your fraud liability: Credit cards offer better fraud protection than debit cards do.
• To keep track of purchases: You get an automatically compiled list of purchases that can help you categorize and keep track of your expenses.
• To budget better: If you use just one credit card for everything, you can get a clear view of how much you spend in any given month.
• To Protect Your Purchases: Many credit cards offer consumer protection benefits like extended warranties – especially for big-ticket items – when you purchase the item with your card.
• For convenience: It’s often easier, and safer, to swipe-and-go than it is to carry cash.

There are some situations, however, when using a credit card might not be the best idea. Here are some scenarios where you’ll want to avoid using a credit card:

• If it will drive your credit utilization ratio too high: If you’re paying for everything on your credit card, you could be using up your available credit. Using too much available credit can have a negative impact on your credit score. It’s a good idea to avoid using more than 30% of your available credit.
• If it will incur extra fees that you’d rather not pay: Some bill payment services, for example, might charge extra processing fees for credit card payments.
• If you’re concerned about interest: Paying your balance in full each billing cycle can help you to avoid purchase APR (Annual Percentage Rate). However, if you’re concerned that you won’t be able to pay your bill on time, and would rather avoid interest charges on your balance, then you may want to consider using alternative forms of payment.

The bottom line: Generally speaking, using your credit card for most purchases can be a great way to get rewards, and enjoy the convenience of a credit card – as long as you use your cards responsibly. Keep in mind as well, that certain types of transactions such as cash advances or balance transfers can incur additional fees and interest charges, so avoid using your card for these types of transactions unless you are confident that the convenience will outweigh the cost.

Though there are people who use their credit cards for everything, many Americans like to use cash or debit cards.¹ Avoiding your credit card isn’t necessarily a bad thing, but never using it can have consequences, too.

The pros of not using your credit card:

• Less temptation to spend: Without a credit card in your wallet, you might be less tempted to overspend.
• Keep debt down: If you’re already paying off other debts, putting your credit card on the shelf might help stop you from incurring more.
• Improved credit utilization ratio: Not using your credit card can help keep your credit utilization ratio down, potentially increasing your credit score.

The cons of not using your credit card:

• Unnoticed fraud: If you don’t use your credit card regularly, you may not notice fraudulent account activity. However, your card issuer may let you set up an alert to notify you if someone makes a charge above a certain dollar amount.
• Account closure: Credit card issuers may decide to cancel your credit card due to inactivity after a certain period of time. And if your account is closed, your credit score might go down.
• Lost rewards: Depending on your card’s terms, your rewards might expire or you might lose accrued rewards due to account inactivity.
• Wasted money: If your credit card has an annual fee, ideally you want to gain enough rewards to make the fee worth it.

The bottom line: Avoiding the use of your credit card probably won’t help you, unless you’re trying to lower your debt. But it also isn’t likely to hurt you, either – as long as you use it every once in a while to keep your account active.

No matter how you like to use your credit card, there are some things you may always want to consider purchasing with your credit card:

• Online purchases: Credit cards have better fraud protection than debit cards, and that’s an online advantage. Plus, some cards offer protection for damages incurred during shipping.
• Travel: You may need a credit card to book a hotel or rental car. And many credit cards also offer travel insurance and rental car insurance, among other benefits like free checked bags and travel assistance services.
• Big-ticket items: If your credit card offers purchase protection benefits, using it to pay for appliances, electronics, and other expensive items can often extend your warranty.
• Stuff that earns rewards: If your card offers a rewards multiplier for certain types of purchases – like 3X or 5X for every dollar spent on gas or restaurants, then using it for these types of purchases could make sense. This can be useful when you find a card that aligns with your current expenditures and offers rewards in areas where you’re already spending.