Image source: Getty Images
When many people think of credit cards, their first thought isn't that a card can help their financial situation. Instead, credit cards have earned a bad reputation because high interest rates and low minimum payments can leave people trapped in credit card debt for years.
The reality, however, is that if you use your credit cards wisely by paying them off on time and in full before you rack up interest charges, your cards can actually make you richer. Here are three key reasons why that's the case.
1. You could qualify for a sign-up bonus
Many credit card companies offer generous sign-up bonuses for new card members. These can be worth hundreds of dollars. They often come in the form of cash back, points, or miles that can be redeemed for travel or merchandise.
If you can get a $500 bonus -- or more -- just for using a credit card for spending you need to do anyway, you're inevitably going to end up richer since the card company will literally be putting more money in your pocket.
Of course, you want to make sure you aren't spending more than you should to earn the sign-up bonus -- and that you don't wind up carrying a balance after charging enough on the card to meet the minimums necessary to earn it. But as long as your efforts to earn the bonus don't leave you drowning in debt, there's no downside to getting free money.
2. You could earn generous rewards
The best credit cards also offer great rewards you can earn over time.
For example, you could earn anywhere from 1% to 6% cash back when using credit cards for common purchases such as gas, groceries, and travel. You could also earn points or miles for purchases, depending on what kind of card you choose.
If you're being paid back a percentage of all of your spending every month, this naturally leaves you wealthier as well -- especially if you opt to invest the cash back you get or the money you save on vacations when you earn free travel by using your card.
3. You can build credit
Credit cards are a great tool to help you improve your credit score and build a solid credit record. Since your credit score matters in so many aspects of your life, this is a huge advantage to using a credit card -- and one big way cards can help you improve your financial situation.
If you pay your cards responsibly and don't charge too much on them, this should help you earn the kind of credit score that enables you to borrow at a low rate. You can use your good credit to buy a home with an affordable mortgage or start a business with a low-interest business loan -- both of which can help grow your wealth over time.
Many companies also look at your credit when deciding whether to offer you employment. This means your responsible credit card use could literally help you land a better-paying gig that puts you on the path to riches.
The key, of course, is that cards can make you wealthier if you use them responsibly. So make sure to recognize their benefits, but also know there could be serious downsides if you aren't committed to paying off your balance in full and paying your bills on time.
Top credit card wipes out interest until 2023
If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR into 2023! Plus, you'll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
