Why Credit Cards Are Still Necessary in 2010

The credit card industry has been thoroughly villainized lately. With all the hate directed toward credit card companies, it is easy to forget that the vast majority of us need at least one credit card.

Of course, if you live in a remote log cabin, hunt for your own food, and never interact with the modern world... you might be perfectly okay with just a debit card and checkbook.

But if you purchase things, travel, or plan to rent or buy a home at some point in the future, then listen up: you still need a credit card. Here's why:

-- Having a credit card account open, and paying your balance on time each month, can improve your credit score. It can help to build a solid credit history, which is what creditors want to see before extending to you a mortgage, car loan, or even other credit card offers. Similarly, many landlords now review credit history, and even some employers look to your credit history in order to determine if you are a responsible individual.

-- Credit cards provide a "just-in-time" emergency cash flow when you need it most. Let's say you are stranded in a foreign country and your bank freezes your debit card due to suspected fraudulent activity or ID theft. You need some source of cash until things are straightened out; a credit card with a high credit limit can be your temporary lifeline.

-- Some purchases are not ideal for debit cards. If you rent a car or make a hotel reservation, they may "block" $300 to $500 as security against possible damage or loss. This means that a $500 hold is placed on your account temporarily. With a credit card that has, say, a $10,000 credit line... this is not a big deal at all. The block is eventually "reversed" and the hold is removed. But with a debit card tied to a checking account, $500 of your own money is temporarily unavailable. Depending on how much is in your account, this could trigger overdraft fees or equally painful insufficient fund fees.

-- Credit cards earn cash back or rewards. Air miles, cash back rebate checks, hotel points... there are so many excellent reward programs out there, even in 2010. Why not get rewarded for making a purchase you have to make anyway? As long as you pay your balance in full each month before the due date, it is literally free money (or free air miles). You can't beat that!