Cash or Credit?

As recently published in the New York Times, a significant number of Americans are making a “Cash Only” pledge because of the increasing number of debit & credit card breaches at major retailers. A hint for what’s yet to come perhaps?

While voting cash over plastic may seem a reasonable reaction at first glance, these people forget that avoiding credit may actually cost them a lot of money on the long run because of the adverse effect it has over their credit score.

Because credit score is really a “use it or lose it” situation, avoiding credit WILL lower one’s credit score over time, resulting in excess interest payments, increased insurance premiums etc.

A common myth among consumers is that credit score may be maintained simply by having available lines of credit. The truth is you actually need to use credit regularly in order to maintain a decent credit score. There’s absolutely no need carry balances. Using a credit card and paying the balance in full every month will do the job.

If you’re worried abbot credit breaches, remember that there are other solutions other than avoiding credit altogether. For starter, start checking your statements & credit report on a regular basis if you hadn’t done so yet. Additionally, contact your all of your credit card issuers to see what risk, if any, is actually placed upon you when fraudulent activity is detected on your account. You may discover that all or some observe a “zero liability” policy that protects you from loss in the event a credit card breach.

Another issue worth familiarizing yourself with is how to report a potentially fraudulent transaction on your account, so that you will be prepared for the worst case scenario.