Do you use your credit card for everything that you buy, even small items? These days, it's not unusual to make small purchases with plastic. A recent survey by CreditCards.com found that 17% of respondents typically charge purchases of $5 or less – an increase of 6 percentage points over last year's survey.
To a certain extent, this is a generational preference. Younger respondents tend to see plastic as the default choice. The CreditCards.com survey found that 53% of respondents ages 18-36 prefer a credit or debit card to pay for inexpensive items, while 70% of Baby Boomers and older seniors primarily use cash for their purchases of $5 or less.
As credit payment methods become even easier, more convenient, and universally accepted, the percentage of people using credit cards to pay for any purchase is likely to continue to increase – but is this a positive trend? Consider the pros and cons.
The most obvious downside of putting all of your small purchases on credit cards is that you lose track of your total charges. The convenience of credit cards accelerates the process by enabling larger impulse buys. You eventually charge more than you can afford to pay each month and start carrying increasingly larger balances.
Security could also be a concern. The more often that you use your card, especially in less secure venues, the more likely it is that your information could be stolen. Should your physical card be lost or stolen, you may be without credit capability for a short time until the account situation is resolved – and that could come at an inconvenient time. If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, check out our credit monitoring service.
On the other hand, there are several compelling reasons to apply smaller charges to your credit card, especially if you need to build a credit history. Rod Griffin, Director of Public Education for Experian, suggests that credit builders stick to one or two cards, and, for each account, "make a small purchase once a month ... pay it in full so you have activity in the account. You are not carrying any debt. You don't have to pay interest. That's going to help build your credit score."
Making only small purchases also keeps your credit utilization low (the amount of credit in use compared to the credit limit), further improving your credit score. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
If you are past the credit-building stage, you can funnel all purchases, large and small, through your credit card in order to maximize rewards points. This can be lucrative under two conditions: you never charge more than you can pay off at the end of the month and you stay significantly below your credit limit to keep credit utilization down.
Credit card purchases also offer a level of protection that cash does not. Granted, you are not likely to seek protection on a stolen $4.99 item that was purchased via credit card – but if you carry a credit card instead of significant amounts of cash, your overall risk liability is lower. Your liability is limited to $50 on fraudulent charges made on your credit card if it is reported as stolen, but any cash taken from you is simply gone.
If you have the discipline and proper budgetary skills, there's no reason not to process all of your purchases through your credit card. There are significant rewards and relatively few risks. It's your choice: join your grandfather on the porch railing against this new-fangled plastic money, or move toward joining the increasingly mainstream cashless society. Of course, then there's Venmo and Apple Pay.
If you want more credit, check out MoneyTips' list of credit card offers.