Credit is Good

Ryan Heshmati

March 24, 2023

Credit cards get a terrible reputation. Elizabeth Warren went so far as to call them “little plastic grenades” and billionaire Mark Cuban told talk show host David Ramsey, “ If you use credit cards, you don't want to be rich.” The perspective is understandable; with double digit interest rates and a history of misuse, the credit card has the potential to inflict great harm, but it can also unlock great opportunity. Robert Kiyosaki argues, “…the problem is not the cards, it's the lack of financial literacy of the person holding the cards…” With proper understanding and usage, credit cards offer great rewards and build the foundation for major life purchases, like a primary residence.

Risks

It is very easy to rake up large amounts of debt on a credit card; certainly, the American people seem to have become aware of that. Credit.com finds the average American household has $9,260 in credit card debt. Now, with the economy facing challenges, The Wall Street Journal reports delinquencies on payments are surging. However, with understanding of how credit cards work, responsible users can avoid falling prey to carrying debt at high interest rates.

Benefits

Admittedly, the credit card comes with potential dangers, but to compensate it offers a great deal in the way of rewards. The problems that arise from credit cards stem from failing to make payments in full; so one should be the kind of customer the credit card companies hate: the ones who pay on time.With regards to perks, not only do credit cards offer cash back or point rewards systems, but perhaps most importantly protection. When unauthorized charges are made on a consumer’s credit card, card issuers protect consumers. That protection proves incredibly valuable, with Security.org finding that 2021 endured “…about $12 billion in total attempted fraudulent charges.” 

Another important positive is the borrowing history that credit card users build. Borrowers’ credit scores are vital as a strong score is necessary to achieve the staple of the American dream: home ownership. In fact, Lendingtree reports nearly a quarter of denied mortgages in 2018 were not approved specifically because of credit history. 

Closing Thoughts

Perhaps Elizabeth Warren is correct in asserting the credit card can be a “little plastic grenade,” but it does not have to be. Many American households are suffering from credit card debt, but to not use credit cards can result in its own challenges. Credit cards offer rewards and protect buyers from fraud. Even further, they unlock the opportunity for borrowing to buy a home by building strong credit. Rather than dismissing credit cards as a debt trap, the right move is to master them in order to acheive greater life goals.