Four Advantages of Credit

The dangers of credit are well-known -- improper use of credit can drive you deeply into debt, impair your credit score and even put you at risk of bankruptcy. However, proper management of credit can provide advantages that can improve your buying power and help you build a strong financial foundation. Four primary advantages make responsible use of credit an essential skill.

Purchasing Power

Building a positive credit history enables you to enhance your purchasing power, allowing you to obtain a mortgage for a home, automobile loans and lines of credit for obtaining personal property you might not be able to obtain through savings. Few consumers have the resources to purchase large items, such as a home or a vehicle, without credit. Responsible credit use also qualifies you for lower interest rates on these purchases, allowing you to minimize the amount of your earnings spent on interest payments. This can reduce the total cost of borrowing money.

Emergency Management

Financial emergencies, such as property damage or injuries not covered by insurance, can easily erase your savings and leave you wondering how you will pay for these expenses. Responsible credit use can qualify you for credit cards or lines of credit to handle these financial emergencies without losing money in savings accounts or liquid investments.

Purchase Protection

Using credit can offer protection against unauthorized purchases. If someone steals your cash and uses it to make purchases, you have no immediate recourse available to recover the stolen funds. However, if you use credit, you can notify your credit card company if your card is stolen, or if a person makes unauthorized purchases using your card number. This can help prevent you from paying for purchases you did not make.

Considerations

Positive use of credit can improve your ability to obtain a job; some employers check an applicant's credit history before deciding whether to make a job offer. A solid credit history shows responsibility, which may make an employer more interested in hiring you. Responsible use of credit can also help you obtain home, auto, life and health insurance at lower premium rates. Insurance companies view consumers with high credit scores as lower risks, which means they are more likely to offer you coverage for less money than they would charge an applicant with no credit history or a poor credit score.