Credit can be an amazing thing but it can also ruin your life if you do not use it wisely. I don’t mean to scare you but this is the truth. Essentially, credit is not cash. It is credit. It is a small personal loan made to you by the bank. If you do not pay it back within 30 days of your purchases, the bank charges you a whopping 19.99% interest on your outstanding balance. I can go into more detail but that would make this post longer than it already is.

So if credit is so scary, why should I have a credit card in the first place?

Well, Karen, I’m glad you asked. There are three major reasons why you want to use a credit card, especially instead of cash/a debit card.

1. If you ever want to buy a house (or even just rent), get a good deal on a car among other things you’ll need a good credit score. Using your credit card, and using it well helps you build your score. But it also helps you destroy it. Your credit score is a financial history of your money habits. Creditors want to know how well you manage credit. And no, not opening any credit products at all doesn’t give you a good score. Remember, its not a time thing, it is a history of your habits over time. If the bank lends you 300,000 dollars for a mortgage, are you going to be able to pay them back? Your credit history tells them if you’re worth the risk. When you’re 18 years old, your history is very short. Get a credit card to help you build that long, good history.

2. You want to have cash. Use your credit card for your daily expenses so that you always have funds for an emergency, for bills that don’t take credit and other places where they don’t accept credit. When you use your credit card, you are differing your payments. At the end of the month, you can sit down and decide how much of your money goes to your cards, and other responsibilities rather than paying them upfront. If an emergency occurs, you’ll need fast cash to cover yourself. Also, should you ever become a victim of fraud (online scams or otherwise), the process of getting your money back is much easier and quicker with credit loss. Defer your payments, protect yourself against fraud, use the bank’s money, not your own (just remember to pay them back).

3. Cash and debit cards don’t give you anything. Well, yes they give you peace of mind because you're not going into debt, but you don’t gain anything either. You only lose. With credit cards, you can earn rewards, like cash back on every purchase you make (free money just for using credit!). You can earn rewards points that you can redeem for electronics and gift cards for your Starbucks addiction. And even air miles to get a discount or even cover the entire cost of your vacation. You don’t get any of that with a debit card.