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What do you do if you are out of cash and have un-expected car trouble? If you have an emergency credit card, you are in luck. If not, you may want to consider the perks of an emergency credit card. In today's world, the thought of forgoing credit cards in favor of a cash-only lifestyle seems foreign: we know some people do it, but it is difficult to understand why. According to the Fair Isaac Corp., creator of the popular FICO credit scoring model, about 20 to 25 million people in the United States do not have any credit cards. An additional 30 to 35 million U.S. residents have a minimal amount of credit history, according to Fair Isaac statistics (they didn't report on children). These figures mean that approximately one in five people Americans do not have access credit cards in times of emergency. The Federal Reserve Board Survey of Consumer Finances of 2004 showed that as many as one in four U.S. consumers live completely without credit card debt. This study of approximately 4,500 respondents showed that 74.9 percent of those surveyed had credit cards. José Garcia, senior researcher at Demos, a national, nonpartisan, public policy research organization, divides non-cardholders into two groups: those who are unable to obtain credit cards, and those who choose not to use them. No credit, no choice According to Garcia, many of those without credit cards simply do not qualify for credit due to bad credit, no credit, illegal immigration status or another reason. The downside of no credit cards is that if you don't have extra cash on hand for emergencies, what do you do if you don't have that emergency card? Well, all these people can do is get pre-paid credit cards and within 6 months to two years build their credit score up substantially and end up with a high enough score to apply for credit cards for people with bad credit. These credit cards boost your score and are great for emergency situations. No credit by choice Some people are scared of credit cards. They believe that they are the root of debt and excess spending. They may have good credit, but are rightly against getting in excessive debt. They may not realize, however, that an emergency credit card may come with perks. For example, if you have good credit you can get a card that you plan on never using, which is an emergency back-up card. Choose one with no annual fee so you are not losing anything by having the card. Additionally, some rewards cards such as the Discover Business Card give you rewards just for having the card,in this case, a free $100.00. And considering there is no annual fee, this makes this the perfect emergency card. You get it, $100, and you may never even have to use it (knock on wood). The alternatives to credit cards Visa or MasterCard debit cards: Though a MasterCard or Visa debit card is typically a good credit card substitute, the downside is that, when it comes time to reserve a hotel room or rent a car, there's a good chance that the hotel or rental card agency will create a $200-$500 or more "hold" on the debit card, and leave you with significantly less available cash in the bank available to spend on other necesseties or for bills. Emergency fund: Financial experts recommend saving an emergency fund of three to six monthss' worth of living expenses in case you face an unexpected job loss or financial crisis. Installment loans from banks or credit unions: There are different ways to quickly qualify for an online personal loans, available for different situations. The interest rates will be is fixed, with a set payoff date. Although it\'s easy to blame the banks for high credit card bills, skyrocketing interest rates, and never-decreasing card balances, they are not dishonest. Instead, it's the fault of the cardholder when debt gets out of control. Use it in emergencies or pay it off in full every month if you are just using it to pay regular bills to earn rewards. Revolving vs. nonrevolving credit Before canceling credit card accounts, stop to consider the long-term implications on your credit score: Note that both revolving credit (in the form of credit cards) and nonrevolving credit (in the form of installment loans, such as auto loans, mortgages or other fixed-rate loans) are factored into a person's credit score. Those people who have paid off and then canceled their credit card account may end up hurting future efforts to obtain credit, because that old account will eventually rotate off your credit report after a period of time. It's better to leave the credit card open and simply cut it up, because this is another element that is weighed in the credit-scoring model: credit companies like to see longevity. They like to see that you've had an account open for a long time and handled it responsibly and never had late payments. Closing a credit card account can also adversely impact your credit rating by changing your debt utilization ratio -- the amount of money you owe as compared to your available credit for spending. If you close an account with a $1,000 credit limit, your overall available credit number available to you will lower, consequently skewing your debt utilization ratio making you look like you have less options for credit available. Ask any personal finance expert, and he/she will agree that credit cards themselves are not the cause of anyone's debt. Instead, it's the misuse of credit that is to blame. Emergency credit cards can help boost your score by decreasing your credit-to-debt ratio, and earn you free rewards without even using the card. Its like the saying, better safe than sorry... Published: Monday 13th of October 2008 12:13:41 PM For more information on credit cards and related topics, please see our library of articles. 
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