The Benefits of Using Credit

Credit can be a powerful tool that helps you improve your finances, get access to better financial products, save money on interest, and can even save you from putting down a deposit opening utility or cell phone accounts.

A good credit score on the FICO® scoring model is between 670-739, this is near or slightly above the average of U.S. consumers and most lenders consider this a good score.^[1]

One advantage of a good credit score can be the ability to access lower interest rates and more favorable terms on loans and credit cards, which can make financing significant purchases such as homes or vehicles more affordable.

While some people have stories about getting burned with credit in the past, when managed responsibly it can be a valuable asset. If you want to know more about the advantages of using credit, read on to learn more.

1. Save on interest

The biggest benefit of good to excellent credit is saving money. When buying a home, for example, good credit can easily save you tens or even hundreds of thousands of dollars on a mortgage loan. People with good credit or better often may get a lower interest rate on auto loans, credit cards, private student loans, personal loans, and lines of credit.

2. Manage your cash flow

When you buy a new purchase with a credit card, you don’t have to pay for it right away. The bank puts the money up when you swipe your card and you pay it back later.

If you pay off your entire credit card balance in full by the statement due date, a good habit to get into, you won’t have to pay any interest charge on the credit card purchase. So make sure you pay your credit card bill on time.

3. Avoid utility deposits

When you sign up for a new cell phone plan or move into a new home and establish utility services, the provider will likely check your credit during the onboarding process. If your score falls below the company’s guidelines, you’ll have to put down a cash deposit to open an account. However, understanding the benefits of a good credit score could motivate you to build it, potentially saving you from such upfront cash requirements in the future.

In a nation where, according to a 2023 survey by Payroll.org, 78% of people live paycheck to paycheck^[2], the added startup costs of utility deposits on top of moving costs can be financially challenging to say the least. Building a strong credit history can help you keep your cash in your own bank account instead of the utility company’s.

4. Better credit card rewards

With a cash back or travel rewards credit card, you can get certain rewards like statement credits which reduce your balance, or cover the cost of an upcoming flight or hotel stay.

With bad credit, you’ll probably find it difficult to be accepted for some reward credit cards. There are certain credit cards that are designed for people with poor credit, but these often have low credit limits and high interest rates.^[3] But as your credit climbs into the good and excellent ranges, you can earn credit card reward points for everyday purchases you already make, highlighting one of the key benefits of a good credit score - the ability to leverage rewards and perks.

5. Emergency fund backup plan

Seeing as an unexpected car repair, home repair, or medical bill can add up to hundreds or even thousands of dollars, it can be helpful to have credit as a backup plan. This situation highlights the perks of good credit as you’ll find it easier to apply for loans and credit cards which could help in an emergency. This not only serves as a safety net in such emergencies but also offers better terms and options for accessing funds when needed.

6. Avoid and limit financial fraud

If you use your debit card and someone steals your card number at a gas station, restaurant or online, the cybercriminal has access to drain all of the cash from your checking account. That can leave you unable to pay the rent or mortgage, without funds for food. If you have been the victim of fraud, you should always get your money back, but it may take a bit of time.^[4]

Your fraud liability on credit cards is more strictly limited than debit. If someone does make an unauthorized purchase on your credit card, you should report it to your credit card issuer. They will then begin a fraud investigation and if fraud is suspected, they will lock the card, cancel it, and then replace it with a new one. Many credit cards come with $0 liability for a fraudulent charge and provide more options for credit card fraud protection.^[5]

7. Purchase and travel protections

Some of the best credit cards give you automatic insurance on every purchase. Rather than paying for expensive purchase coverage from the retailer, you can rely on purchase protection, extended warranty coverage, price change protection and other benefits offered by some credit cards.^[6]

When traveling, credit cards can offer rental car insurance benefits, trip accident or delay benefits, lost or delayed baggage insurance, and other helpful and valuable benefits that can save you a ton of money or hassle if something doesn’t go as planned.

Benefits of building your credit score

When you plan to purchase a property with a mortgage in the future, the benefits of upgrading your credit can become very clear. It can have a big impact on your eligibility to buy a home in general as well as your capacity to afford a specific one.

Some mortgage lenders require a minimum credit score, and your credit score can impact how much interest you pay. But saving on the interest charge is just one of many ways having a good credit score can benefit your finances.

Don’t underestimate the power of good credit

The benefits of having good credit include the potential to save many thousands of dollars on interest payments over your lifetime, and making it easier to apply for various types of credit.

The good news is though, even if you have bad credit right now, you can build credit over time to gain access to the credit accounts you want in the future. Consider researching what a secured credit card is and what it can do for your credit.

Take the time to master your credit and you’ll enjoy the dividends for decades to come.

Sources

1. MyFICO, “What is a Credit Score?” https://www.myfico.com/credit-education/credit-scores
2. Forbes. "Living Paycheck to Paycheck Statistics". https://www.forbes.com/advisor/banking/living-paycheck-to-paycheck-statistics-2024/
3. Bankrate, “How to Get a Credit Card With Bad Credit” https://www.bankrate.com/finance/credit-cards/how-to-get-a-credit-card-with-bad-credit
4. Consumer Finance, “How do I get my money back if I discover an unauthorized transaction or money missing from my bank account?” https://www.consumerfinance.gov/ask-cfpb/how-do-i-get-my-money-back-after-i-discover-an-unauthorized-transaction-or-money-missing-from-my-bank-account-en-1017/
5. Forbes, “What is $0 Fraud Liability and Do All Credit Cards Have It?” https://www.forbes.com/advisor/credit-cards/0-fraud-liability/
6. The Points Guy, “The Best Credit Cards for Purchase Protection” https://thepointsguy.com/credit-cards/best-cards-purchase-protection/

About the author

Eric Rosenberg is the mastermind behind the Personal Profitability blog and podcast. He has both an undergraduate degree and a MBA in finance and his work has appeared in various media outlets. See Eric on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor®. Self is a financial technology company with a mission to help people build credit and savings.

Editorial policy

Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).