When to use your credit card (and when not to)
Want to become a savvy credit card user? You've come to the right place. This article will discuss when to pull out your credit card and when to keep it tucked away.
We'll also talk about surprising places that do accept credit cards, as well as a few places that do not. Use this handy guide to make sure you always know how to answer the question: "And how will you be paying today?"
When you should use your credit card
There are a few situations in which using a credit card can pay off handsomely. Before you get too enthusiastic, remember two important caveats:
- Make sure you check your credit card's policies before going this route. Not all credit cards are made alike.
- If you don't pay off the full balance at the end of the month, that seemingly innocent purchase is going to end up costing you big time.
Big-Ticket Items
According to experts, it may feel a bit risky to throw that big-screen television on your credit card, but it actually could be the smart way to go. Here's why: most credit card companies offer certain protections that may come in handy with large purchases. These include fraud protection, as well as the ability to dispute the charge if an error is made. Some credit cards even offer automatic extended warranties on certain purchases. A large purchase can go a long way toward your rewards total if you have a rewards card.
Other credit cards offer introductory 0% APR periods for new purchases for anywhere from 9 to 21 months. That means if you make a large purchase, you can pay it down for a set amount of time while it accrues no interest. It's a great way to save money on any planned big-ticket purchases.
Travel
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Many hotels use credit cards to hold reservations. There's another reason you might want to use your card for booking travel: check to see if your credit card includes secondary travel insurance coverage. Another bonus? Certain travel rewards cards offer extra bonuses for travel-related purchases.
Also: The best Marriott credit cards: Enjoy extra travel perks
Purchases made online
There are a lot of protections in place for online shoppers using credit cards. Some cards also offer additional coverage in case the item arrives damaged or doesn't arrive at all. Make sure you're shopping on a secure site, and be stingy with your personal information.
When you shouldn't use your credit card
On the flip side, there are a few instances in which using a credit card is a bad idea. Consider the following:
Student loans
It's a big-ticket item, right? Still, the big-ticket item clause only works when you can pay off the balance at the end of the month. Since student loans are inherently paid off over time, credit cards are not the ideal tool. Even with student loan interest rates rising, those interest rates are still lower than most credit card APRs.
Also: How to build good credit in college
Medical bills
Medical bills can be overwhelming, and sometimes a credit card is the best option. Still, make sure to talk to your care provider or insurance company first; many offer payment plans that will keep the overall cost lower than interest-heavy credit card payments.
Anything that will tempt you to carry a balance
The biggest no-no when it comes to credit cards is spending beyond your means. If that big splurge means breaking your budget and carrying a balance, ask yourself if it's really worth it.
Surprising reasons to use your credit card
Here are a few instances when, contrary to popular belief, using a credit card is actually encouraged:
Rent
Many landlords are increasingly open to taking credit cards for rent. There are several reasons to consider this option. First, it helps to build your credit. Second, this option enables you to make instant payments (without postage or mail delays). Finally, you may be able to earn some rewards.
Monthly bills
You may want to see if your gym membership, cable, cell phone bills, or utilities can be placed on a credit card. In some cases, you may even be able to schedule automatic monthly payments. This not only helps with budgeting and staying up to date on payments, but it can carry the same benefits as described in the rent section above.
As always, this option works best if you are a rock star budgeter who plans to pay off the full balance each month.
Also: How to create a budget with your credit card
Purchase you likely cannot make with your credit card
Credit card issuers typically charge a fee to retailers and service providers, which explains why some places -- especially small businesses -- simply won't take cards. There are also a few other purchase categories where your credit card won't be welcome:
New Cars
That fee from the credit card company adds to the purchase of a new car, so it's not surprising that most car companies won't take credit cards.
Also: Can you buy a car with a credit card?
Lottery tickets
This time, it's the card issuers banning purchases. Some card issuers specifically prohibit the purchase of lottery tickets (but others allow it). Check with your card.
Tuition
We discussed the dangers of putting student loans on a credit card; if you're paying straight to the school, they're unlikely to take your card due to the fees.
Gambling chips at a casino
Let's be honest: it's a good thing that casinos don't take credit cards in exchange for gambling chips. That could add up to heavy losses multiplied by heavy interest rates.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]