9 reasons to love credit cards

By Liz Pulliam Weston

A reader recently mistook me for someone who hated credit cards. He wanted to enlist me in his battle against evil plastic and spread the word that credit cards were the gateway to debt hell.

But he picked the wrong woman. I hate credit card debt. But I love credit cards.

In just the past few months, credit cards:

• Helped me resolve an ongoing dispute with a software company.

• Protected my purchases from theft or damage.

• Provided two free airplane tickets for a recent family trip.

• Gave me insurance coverage on a car rental.

• Knocked 3% to 5% off the cost of some business expenses with no effort on my part.

• Allowed me to pay bills on time, also with no effort, while boosting my credit score.

I get all these goodies largely because so many other folks play the credit card game so badly. The profits they generate for the credit card issuers essentially pay for my freebies. Consider:

Most folks who have credit cards carry a balance. Only about 40% of us, or 30% of U.S. households overall, regularly pay our balances in full. Credit card issuers still make money from our transactions, thanks to fees charged to the merchants, but that amount pales compared to the sums collected from people who carry balances. Merchant fees are typically 3% or less, while the average interest rate is 13.98% for a credit card, according to IndexCreditCards.com.

Many don't bother to redeem. Half of those polled in a 2006 survey had rewards cards, but 41% of those cardholders never or rarely redeemed their rewards, according to the survey, done by Harris Interactive for GMAC Mortgage. That's a lot of accrued miles, rebates and points sitting around unused.

Many have no idea what benefits their cards offer. If they did, more people would likely take advantage of them -- which might cause the issuers to dial back.

But I'll take the risk and let you know what you might be missing.

A tool, a penny-pincher, a guardian

As I said, I love credit cards, and if you're a responsible consumer, there are plenty of reasons you should love them, too. Credit cards provide, in alphabetical order:

Arbitration. What consumer hasn't gotten cross-threaded with a store or other company over a purchase? You try to resolve their mistakes, only to run into brick walls with uncaring or unavailable customer-service staffs. Enter your credit card issuer, which is sworn to investigate and mediate disputes. And so far, this customer has always been right.

My latest spat was with an antivirus-software company that failed to send me the required serial number that would allow me to use its program. I sent repeated e-mails and left phone messages, but the company's only response was to send me a CD of the program -- again without the necessary serial number -- and charge me again for the unusable software. All I had to do was alert American Express, and the issuer promptly removed the company's charges from my bill. (To preserve your federal rights, you'll want to make such complaints to your issuer in writing. Even if you make your initial complaint online or on the phone, follow up with a letter sent certified mail, return receipt requested, and keep the paperwork. I've never needed it, but the documentation is good to have if the dispute gets ugly.)

Automatic bill payment. Life is complicated; I like to make it simpler. One way is by charging regular bills to credit cards that are promptly paid off each month (also by automatic payment). As a savvy consumer, I still take time to parse through the transactions as they're downloaded into my personal finance software every few days. But I no longer have to worry about missing a due date, which helps preserve my credit rating (more on that in a minute).

Bulwark against identity theft. When I pay with a check or a debit card, I'm providing a potential pathway into my bank account. And once a thief raids your bank account, getting your money back can be a struggle. Plus, you often have to close your account and open a new one to prevent future incursions. If a thief gets my credit card or credit card number -- as one did a few years ago -- all I have to do is report the theft in a timely fashion (typically within 60 days of the account statement being issued). The bogus charges are erased from my account, I'm issued a new card and life goes on.

Continued: Credit improvement

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