Credit cards can be dangerous items, but there are also various useful ways in which credit cards make life easier for their owners. The following is a list of some of these ways.
Convenience – especially when paying online or over the phone
Credit cards allow payment to be made in various settings, including over the phone and online. Essentially, the credit card provider works as an intermediary, removing the need for the purchaser and the seller to have a direct credit contract between them. Instead, the purchaser and the seller each have a contract with the credit card.
People who use credit cards for convenience are often referred to as ‘transactors.’ Investopedia defines a transactor as:
A consumer who pays his or her credit card balance in full and on time every month. Transactors do not carry a balance from month to month; they always pay their credit card bills in full by the due date. Transactors do not pay interest or late fees.
Consumers who do not pay the balance of their credit card off each month, and who thereby incur interest on their card, are sometimes referred to as revolvers.
Credit cards can provide a simple way for a small business to manage its record-keeping. Consider a client who operates her own small business as a psychologist. She will probably have a private credit card which she uses for personal expenditures such as groceries or petrol. If she uses the same credit card to pay her business expenses, then at the end of each month she will need to manually review her credit card statement to identify those expenditures which can be treated as deductions when calculating her business profits.
A better way is often for that client to acquire a second credit card and to use that credit card exclusively for the bills which apply to the business. By doing so, at the end of the month she needs only to file the statement for the credit card so as to have a thorough record of all of her expenditure for the month. This can usually be automated, and the information provided directly to her financial adviser or her financial management software.
If her business has a loan facility, she can even organise for that facility to be used to pay the credit card balance by direct debit at the end of each month. (Direct debit should always be used, to ensure that interest is not incurred on the credit card). Provided that the expenditures were for legitimate business expenses, this will not compromise the deductibility of the interest on that debt facility.
Many people who use credit cards in this way make the ‘work’ credit card a completely different colour (and maybe even use a completely different provider). Something as simple as ‘blue card for me, red card for the business’ often works well.
Demonstrating a Good Credit History
For people with no other debt, having a credit card that they have repaid in full each month (i.e. being a transactor) is a good way to demonstrate their good credit history. This can make it easier for that person to obtain other forms of debt finance.