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What are the benefits of having a credit card?

Peter Terlato avatar
Peter Terlato
- 5 min read
What are the benefits of having a credit card?

A credit card can be an advantageous tool for individuals and households. They can boost your purchasing power; help to establish, improve and, if necessary, repair your credit history; and provide exclusive perks and bonuses.

Not all credit cards are alike. Different cards offer different features, allowances and rewards. Let’s explore some of the possible benefits you might have access to by possessing a credit card:

Interest-free spending

Credit cards allow you to make purchases using money borrowed from the bank or financial institution (credit provider). While your credit card may carry spending limits, the purchases you make are interest-free for a specified period. This is typically between 45-55 days from the beginning of the billing cycle.

This means that you can make purchases throughout each billing cycle and as long as you repay what you’ve borrowed before your interest-free period expires, you won’t be charged any extra.

Purchasing power

A credit card can improve your purchasing power by providing access to funds you don’t have available. This may help you to avoid dipping into your savings (and losing any interest you might accrue) and could mean the difference between affordability and having to abandon a purchase.

For example, you’re paid a salary which is deposited monthly into your bank account on the 14th. Your quarterly energy bill is due on the 2nd but you haven’t got enough money in your debit account to pay the total. You could pay the bill on time with your credit card and use the income you’ll receive later in the month to pay your credit card statement, interest-free.

Improve your credit score

As the name suggests, a credit card furnishes you with funds that you’ll need to repay. You can establish and build up your credit score through the use of a credit card. If you pay off the money you borrow on time, this is favourable for your credit score. In contrast, if you miss payments you may find that your credit score is negatively affected.

If you’re able to meet all of your repayment requirements each billing cycle, you can improve your credit score

Borrowers with excellent credit scores are more likely to have their applications approved and be offered the most competitive interest rate available. The reason being is that lenders can have confidence in excellent-credit borrowers’ ability to repay the loan amount, as they have a demonstrated history of positive credit behaviour.

Earn rewards and points for everyday spending

Some credit card providers allow cardholders to earn points on eligible purchases that can be spent through rewards programs. These rewards can range from gift cards and home appliances to frequent flyer rewards, such as flight upgrades and complimentary insurance. A provider may also offer credit card rewards in the form of cashback offers.

There are three main ways to earn rewards credit card points, regardless of the rewards program:

  • Sign-up bonus points: These can range from a few thousand to hundreds of thousands of points upon application approval. However, you’ll usually need to meet strict spending conditions in order to be eligible.
  • Earn rates: Each rewards credit card will have its own set earn rate. This is the amount of dollars spent per point earned, such as 1 dollar per point. This can be as low as 50c per point or as high as $2-3 per point.
  • Transferral: Some credit cards, such as Qantas frequent flyer cards, may allow you to transfer your existing points balance to a new card with a similar rewards program. This way you don’t lose any points you’ve acquired. 

When it comes to earning points it’s important to remember that some credit cards may cap the amount you can earn each statement period, and some may even set points' expiry dates. It’s important to check the terms and conditions of the card you’re applying for to discover the rules and requirements for earning and spending rewards points.

Emergency funds

A credit card can be helpful in an emergency situation, where you need immediate access to money. For example, you might be holidaying overseas and need to book a rush return flight home for family reasons. You might not have enough cash on your debit card to cover the cost of the airfare but you’re able to secure a seat using your credit card.

Credit cards aren’t necessarily designed to finance emergencies and any money you spend will need to be repaid by the due date on your statement. It could be worthwhile setting up a separate savings account for emergencies. This way, you’ll have money set aside for when it’s needed and you won’t have to worry about costly interest charges.

Complimentary insurance, airport lounge access and other benefits

Many credit cards include insurance policies as part of the lending agreement. Typically, you’ll find that most cards touting this freebie are offering travel insurance. While this may seem like a tempting benefit, the cost of the policy is often baked into the fees associated with the card.

Some cards are linked to or offered in partnership with a particular airline or frequent flyer program. These cards might include complimentary access to airport lounges and free seat upgrades. It’s sensible to determine whether or not you’ll utilise these benefits in order to get the best value from the card you select.

Other considerations when applying for a credit card 

As with any financial product or lending arrangement, there are risks associated. You can fall into debt by missing repayments, be charged exorbitant interest rates and potentially damage your credit score, which, in turn, could drastically affect your ability to borrow funds. When searching for a credit card, it’s important to compare all the different product features, not just the positive benefits, to find the card that best suits your needs, budget and goals.

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Product database updated 23 Jul, 2024

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.