Why do I need a credit card?

Last week I posted about my credit cards that I am going to keep going into the Summer 2019. I have also written about my AMEX Platinum which I found to be very useful and worth the fee last year!

Do you have to pay a $700 annual fee to have a useful credit card?

Definitely NOT!

There are many options for credit cards with different points or cash back schemes. We will leave those options out right now, and just focus on the reasons that you need a credit card in the first place.

Reasons for having a credit card in your daily life

1. Credit cards are necessary to improve your credit score. I know someone currently trying to get a loan from the bank for schooling, and they have to first get a credit card and spend some money on it to establish some credit history with the bank before being granted a loan. Credit histories can take a while to build up, so the sooner you start on this the better. I got my first credit card at 18. Luckily I was responsible with it, and it has helped me so much down the line.
2. Everything is going digital/online. I got an email from GoodLife a few months ago, telling me that they were going cashless. That means if I wanted to buy extra water, towels, etc, then I would need some type of card for this.
3. In some cases is the only form of payment. I don’t even know if someone like Air Canada would take debit, but I assume not? Credit cards can be the only accepted form of payment.

Reasons for having a credit card while travelling

1. Credit cards can be safer than cash. If the card gets stolen you simply cancel it (they even provide you with international toll-free numbers). No one can spend any extra money on that card. If your bag full of 2000 euros gets stolen, that is not going to be returned in any way.
2. Exchanging money can be a tricky thing. How much do you need? Will you have enough for the cab to the airport at the end of the trip? While there will still be some element of this, credit cards can alleviate the stress. Most things like the hotel, most restaurants, and some shopping can go on the credit card while the cash can be saved for smaller restaurants and cab rides.
3. It is common for hotels and even gas stations to “reserve” more of your credit limit than the actual purpose. Example: your hotel room in Phnom Penh costs $50/night and you are staying for 2 nights = $100. The hotel may reserve even $200 of your credit card balance. By doing this they are making sure that if you leave the room a disaster, there is room on your credit card to charge this. If they don’t charge you this $200, it even going to “posted transactions” it stays in “authorized transactions” and eventually goes away once they remove the hold. But while the hold is there, you can’t use that money. If your credit card only had a limit of $500, and $100 went the hotel payment and another $200 was reserved, you would only have $200 left to spend on the credit card. So while these prepaid cards do have a purpose in certain situations, that means that it a hotel holds your money, it is actually holding your money. With a credit card they are holding part of your limit, which is probably WAY higher than what you actually intend to spend. Do you see the difference? Obviously this works better when you have more room on your credit card than you intend to use, another reason to use credit cards in your daily life to gain the trust of the bank so that you can increase your credit limit to be ready to travel with it!
4. Credit cards can be proof of ID. Sometimes they ask for one piece of ID with a photo, and the 2^nd can be a credit card. Also handy.

Used responsibly, credit cards can be very useful in your daily life. If you apply for a credit card that the bank gives you a $5000 limit for, you are allowed to choose anything below that. If you don’t trust yourself you can ask them to reduce it to $500 and see how that goes first. Just be aware that after you reduce it, asking for them to raise it again will show a credit check so don’t treat it like something you can play with every month. The limit will need some planning but can help you so much!