Advantages and Disadvantages of Credit Cards

When comparing the pros and cons of credit cards, it’s incredibly important to be aware of as many as possible so that you’re well prepared for every eventuality.

While there are definite advantages of using credit cards, there are also some disadvantages that could affect your credit rating, so ensure that you’ve considered both sides and all the possibilities before committing to getting a credit card.

To make it a bit easier for you, we’ve put together a list of the most common credit card benefits and drawbacks to help make your decision a little bit easier.

It’s also important to check your credit score regularly to ensure that you’re keeping it at a good and suitable level. Check yours now to get an idea of your eligibility for borrowing:

Advantages of credit cards

Credit card payments can have numerous advantages, providing that you know how to use them properly and in a way that’s deemed as ‘safe’ so that you don’t run the risk of racking up a lot of debt.

Here are some of the pros of having a credit card:

You can ‘buy now’ and ‘pay later’

One of the top advantages of a credit card is that you’ll often have the option to buy now and pay later which means you can still enjoy the purchase of a product, but you don’t have to worry about paying for it until a later date.

This can be a good thing if you really need to purchase something but don’t have the sufficient funds upfront to pay for it, but it’s important that you don’t use this method too frequently. You should always try and pay for things when you know you can afford to pay them back later.

It can improve your credit score

There are such things as credit builder credit cards which are designed for people just starting out in their credit journey, or for those who have bad credit. These allow you to build up your credit score in a safe and controlled way so that you can build it up if you need to show your bank or lender that you are creditworthy to obtain a mortgage, for example.

You’ll benefit from credit card protection

Credit card protection, or purchase protection, is another advantage of having a credit card as it allows you to claim back the money you lose if ever you buy something on your credit card and it is faulty or lost.

This added protection means that even if your purchase doesn’t turn up or arrives broken for example, you will be able to make a claim for a refund via your credit card provider.

Interest free benefits

There are some credit cards that offer an interest-free period, which effectively lets you borrow money for free. Of course, this benefit won’t last forever, so it’s important not to rely too heavily on it, but it can be a good swaying tactic when deciding between two credit card providers.

You can enjoy cashback and rewards

Another positive of having a credit card is that some cards offer incentives such as cashback and reward systems.

Some airlines, for example, have their own credit cards where you can enjoy benefits such as free airline miles and discounts on flights; these can be good if you’re a frequent flier and are looking to save money where possible.

Disadvantages of credit cards

Of course, there are some drawbacks to having a credit card in addition to the above benefits.

If you take out a credit card in order to consolidate debt, this can often result in extra costs such as higher interest rates and fewer credit card options available, so it’s important to consider the reasons why you might want to obtain a credit card in the first place, as well as the pros and cons of credit cards.

It can negatively affect your credit score

While having a credit card can sometimes help to improve your credit rating, it can also sometimes have the opposite effect too.

For example, if you let your credit card payments rack up, or if you start to miss your repayments, then this can massively affect your credit score and could result in it decreasing, which means it will be more difficult for you to obtain credit in the future.

Be wary of the purchases you make on your credit card and ensure that you’ll be able to pay them back to avoid missed payments showing up on your report, resulting in your credit score decreasing.

You could rack up a lot of debt

Similarly to the point above, you could also run the risk of racking up debt when having a credit card, especially if you’ve been known to struggle to make your repayments in the past.

Ensure that you’re only spending money on your credit card that you know you’ll be able to pay back.

How to choose a credit card

There are a few questions you should bear in mind when it comes to determining how you should choose a credit card and what factors you need to consider:

• Will it help to build your credit score?

• Think about your existing debt.

• Does it offer cashback and rewards?

• What are the benefits of using your card abroad?

• Are there any hidden fees to look out for?

• Does it have an interest-free introductory offer?

Of course, there are numerous other factors to think about when choosing a credit card, but these questions are a good place to start.

The best way to use a credit card

It’s important that you’re aware of the best way to use your credit card so that you can make the most out of it and use it in the correct way:

• Always try and make your repayments on time

• Set up a direct debit to make your payments each month

• Ensure that you make the most out of the rewards and cashback offers

• Try to keep your credit utilisation ratio as low as possible

For further advice on credit cards and how best to use them, check out our related guides below.

Related guides

• The Best Things to Buy With a Credit Card

• What Not to Buy With a Credit Card

• Types of Credit Cards in the UK