16 Advantages and Disadvantages of using Credit Cards | finder.com
Benefits and disadvantages of a credit card

Benefits and disadvantages of a credit card

Weigh up whether a credit card is right for you with our comprehensive list of pros and cons.

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Credit cards can be a convenient way to manage your finances, but they can also be expensive and risky. If you’re deciding whether or not a credit card is right for you, here are some of the main benefits and disadvantages you can weigh up to make your decision.

If you’re wondering whether a credit card is a good fit for you, you can also use our lists of who credit cards are suited (and not suited to) to help make the right choice.

9 Benefits of using a credit card

Some of the perks that come with paying on plastic include:

  1. A credit card is safer than carrying cash. While there’s only a small chance of having lost or stolen cash returned, a credit card can quickly be cancelled if you lose your wallet. Most financial institutions also have security processes in place to protect you if your card has been lost or stolen or if you suspect your account has been used for a fraudulent transaction. If you’re in any of these situations, make sure to contact your bank to report the issue as soon as possible.
  2. A credit card can build your credit rating. Your credit card account details and payment history make up a key part of your credit file. If you keep your account in good standing, this information will help you build up a good credit score, which could increase your chances of approval for other products such as car loans or a mortgage.
  3. You can get interest-free days. If you pay your balance in full before the statement period ends, you can be rewarded with interest-free days on future purchases for a set period.
  4. Earn reward points when you spend. Rewards and frequent flyer credit cards allow you to earn reward points on every dollar you spend on eligible purchases, such as the groceries and petrol costs. Rewards credit cards let you earn reward points to redeem with the bank’s rewards programs for perks including flights with partner airlines, products from the rewards store or cash back. Frequent flyer credit cards, on the other hand, let you earn flights with specific airline loyalty programs.
  5. You can request a chargeback if you’re unhappy with a product or service. You can request a chargeback through your credit card company if you have a dispute with a merchant, either in-store or online.
  6. Credit cards work in any currency. Although currency conversion fees usually apply, you can use your credit card overseas to make purchases in a foreign currency. There are even credit cards that waive fees for international purchases, which could be useful if you often shop at overseas online stores or have an international holiday coming up.
  7. Credit cards give you an emergency line of credit. Credit cards can be a financial safety net if you don’t have enough cash or savings to cover any unexpected costs that arise. Remember that you have to repay everything you owe, though.
  8. Credit cards often have complimentary extras. Credit card features such as travel insurance, purchase protection and extended warranty insurance can save you money and give you peace of mind. Other value-adding features include complimentary flight offers, airline lounge passes and even free wine when you dine.
  9. You can consolidate debts and save money on existing balances. Balance transfer credit cards allow you to move existing high-interest debts to a new account with a low or 0% promotional interest rate. This can save you money on interest charges and help you pay down debt faster.

7 Disadvantages of using a credit card

The downsides of spending with a credit card include:

  • Paying high rates of interest. If you carry a balance from month-to-month, you’ll pay interest charges. Purchase and cash advance interest rates can be as high as 22% p.a., so you can end up paying hundreds or thousands more than you initially charged in interest if you’re unable to make repayments each month.
  • Credit damage. Missed credit card repayments and ongoing debts are recorded on your credit file and can impact your chances of getting a loan down the track. See our guide on how to improve your credit file for some tips.
  • Credit card fraud. There are a range of fraud schemes that target credit cards. While you can be compensated for illegal transactions on your account, dealing with credit card fraud can still be a time-consuming and stressful experience.
  • Cash advance fees and rates. Financial institutions make it very expensive to use your credit card to get cash out or make other “cash equivalent” transactions (such as buying foreign currency or gambling). Using a credit card for a cash withdrawal will attract a cash advance fee worth around 3% of the total transaction amount. It also typically attracts an interest rate of 19-22% right away.
  • Annual fees. While you can often get debit cards without annual fees, most credit cards have them. These can cost as little as $25 per year, or as much as $1,200 depending on the card that you choose. Generally, the more perks you want, the higher the cost of the annual fee. If you want to avoid this charge, you can consider a no annual fee credit card – but make sure you look at all the other features to help find a card that works for you.
  • Credit card surcharges. Businesses often apply a surcharge when you pay with a credit card. For Mastercard and Visa products, this fee is usually 0.5-2% of the total transaction cost, while for Amex cards it could be closer to 3%. Whatever the case, this is an extra cost for the convenience of paying with plastic.
  • Other fees can quickly add up. Depending on your card, you could be charged fees when you miss a payment, fees if you spend past your credit limit, fees for overseas transactions, balance transfer fees and even some rewards programs fees. If you carry a balance or don’t have access to interest-free days, there’s also a good chance interest will be applied to these charges.

Should I use a credit card?

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Credit cards are suited to certain types of people, but not others. As well as considering the pros and cons, you may like to look at the following factors to help decide if a credit card is right for you.

A credit card may suit you if you

  • Are at least 18 years of age
  • Are an US citizen, permanent resident or hold an eligible temporary visa
  • Have a regular source of income
  • Regularly pay your bills on time
  • Want to keep certain transactions separate from your everyday bank account
  • Are keen to earn rewards for your spending
  • Need more flexible cashflow
  • Can afford to pay a little extra for the convenience

A credit card may not suit you if you

  • Don’t meet the age or residency requirements
  • Often struggle to pay bills on time
  • Don’t have a regular source of income
  • Can’t afford annual fees or interest charges
  • Have bad credit
  • Are happy to just use a debit card

If you’re thinking about getting a credit card, it’s important to consider the benefits and disadvantages they offer based on your own circumstances. As well as helping you decide whether a credit card is right for you, this process can narrow down the range of cards you compare so that you can find an option that works for you.

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Compare credit cards

Rates last updated April 20th, 2018
Name Product APR for Purchases ( Purchase Rate ) Intro APR for Balance Transfer Annual fee Product Description
Deserve® Classic Card
Deserve® Classic Card
24.24% variable
$39
Designed to help build credit history with no deposit required and access to benefits.
Luxury Card Mastercard® Titanium Card™
16.49% variable
0% Intro APR for for the first 15 billing cycles (with whichever is greater: $5 or 3% balance transfer fee)
$195
Enjoy unique excursions, privileged access to exclusive events and insider opportunities.
Indigo® Platinum Mastercard® Credit Card
23.9% variable
$75 annual fee for the first year ($0 to $99 thereafter)
With this card you get a 23.9% variable APR.
Barclaycard Ring™ Mastercard®
10.49% variable
$0
A low, variable APR on purchases, balance transfers and cash advances.
Barclaycard Arrival Plus® World Elite Mastercard®
17.24%, 21.24% or 24.24% variable
0% Intro APR for 12 months (with whichever is greater: $5 or 3% balance transfer fee)
$0 annual fee for the first year ($89 thereafter)
Enjoy 40000
bonus miles after you spend on purchases in the first 90 days — that's enough to redeem for a $400 travel statement credit toward an eligible travel purchase.
Credit One Bank® Visa® with Free Credit Score Tracking
19.15% - 25.24% Variable
$0 to $75 first year annual fee for the first year ($0 to $99 thereafter)
Get 1% cash back rewards on eligible purchases including gas, groceries, and services such as mobile phone, internet, cable and satellite TV, terms apply.
Credit One Bank® Unsecured Platinum Visa®
19.15% - 25.24% variable
$0 to $75 first year annual fee for the first year ($0 to $99 thereafter)
Give your credit a boost with credit line increase opportunities, a fee may apply.
The First Access VISA® Credit Card
29.99% variable
$75.00 for first year. After that, $48.00 annually.
Access credit even if you have poor or limited credit history.
Simmons Bank Visa® Platinum
9.50% variable
$0
The Simmons Bank Visa® Platinum Card offers multiple perks, including one of the lowest available APRs on the market.
Credit One Bank® Unsecured Visa® with Free Credit Score Tracking
19.15% - 25.24% variable
$0 to $75 first year annual fee for the first year ($0 to $99 thereafter)
Get 1% cash back rewards on eligible purchase, terms apply.
Simmons Bank Visa® Platinum Rewards
11.50% variable
$0
Excellent Credit Required - Applicants that do not have excellent credit will not be approved

Compare up to 4 providers

Rates last updated April 20th, 2018
Name Product Annual fee Max credit limit
Target REDcard Credit Card
A no annual fee credit card and discounts when you shop at Target.
24.15% variable
$0
Emporium Card
Get a $300 to $5000 instantly to shop 100,000+ items at Emporium.
Varies by balance. See website for details*
$0
$5,000
Fingerhut FreshStart® credit account
Get instant access to purchase items in the Fingerhut store with no overlimit fees.
26.15% variable
$0
Horizon Gold Card
Get a 500 credit limit to make purchases on the Horizon Outlet website.
0%
$500
Fingerhut Advantage Revolving credit account
Helps you keep building your credit as you buy great name brand products.
26.15% variable
$0
$800
Luxe Signature Card
For purchases on HuttonChase.com with a maximum credit limit of $1500.00.
0%
$0
$1,500
Next Millennium Card
Shop the items you need at myuniqueoutlet.com with up to a $1000 credit.
0%
$1,000
Fingerhut Credit Account
The Fingerhut Credit Account is store-specific, and used to finance purchases made from Fingerhut.com or Fingerhut FreshStart’s catalogue.
26.15% variable
$0
Gettington Credit Account
Pay for purchases over an extended period of time while you shop at Gettington.
25.90% variable
$0

Compare up to 4 providers

Rates last updated April 20th, 2018
Name Product APR for Purchases ( Purchase Rate ) Intro APR for Balance Transfer Annual fee Product Description
USAA Secured Card Visa Platinum®
11.15% to 21.15% variable
$35
Get a card that can help you build credit. Determine your own credit limit. When you apply, you'll open a two-year certificate of deposit (CD) with $250 to $5,000. The balance of your CD is your credit limit.
USAA Rewards™ Visa Signature®
11.15% to 27.15% variable
$0
Earn points on everyday purchases. Earn one point for every dollar spent on your everyday purchases. Get 2500 bonus points with your first purchase.
USAA Preferred Cash Rewards Visa Signature®
13.15% to 27.15% variable
$0
Earn 1.5% cash back on every purchase. There's no limit on the amount you can earn.
USAA Rate Advantage Visa Platinum®
8.15% to 25.15% variable
$0
This card offers the same low rate for purchases, cash advances and balance transfers.
USAA Rewards™ American Express® Card
11.15% to 27.15% variable
$0
You can get cash back (unlimited) on groceries and gas and on most purchases and get car rental insurance as well.
USAA Secured Card American Express®
11.15% to 21.15% variable
$35
You can get travel benefits (no foreign transaction fees), retail benefits and collision damage waiver coverage on your rental car.
USAA Cashback Rewards Plus American Express® Card
13.15% to 27.15% variable
$0
Get high cash back rewards on most purchases, including gasoline, groceries and military base purchases.
USAA Military Affiliate Cards
12.15% to 27.15% variable
0% Intro APR for 12 months (with maximum fee per transfer $200: amount of each transfer 3% balance transfer fee)
$0
Earn 2,500 bonus points credited to your account with your first purchase and then 1 point per $1 spent. No expiration date.

Compare up to 4 providers

Rates last updated April 20th, 2018
Name Product Product Description APR for Purchases ( Purchase Rate ) Annual fee Interest Free Period
primor® Secured Mastercard® Gold Card
Low fixed interest rates with no penalty rate.
9.99% variable
$49
Up to 25 days
First Latitude Platinum MasterCard® Secured Credit Card
First Latitude Platinum MasterCard® Secured Credit Card
Enjoy no annual fees while building your credit
25.99% variable
$0
Up to 25 days
First Progress Platinum Prestige Mastercard® Secured Credit Card
You can increase your credit limit by adding funds to the initial deposit.
9.99% variable
$49
Up to 25 days
OpenSky® Secured Visa® Credit Card
A secured Visa® credit card that helps you build your credit quickly.
18.64% variable
$35
Up to 25 days
First Progress Platinum Elite Mastercard® Secured
With just a security deposit and 19.99% variable APR, start building or rebuilding your credit history.
19.99% variable
$29
Up to 25 days
UNITY Visa Secured Credit Card
Borrow up to $10000 and get your credit score back on track.
17.99% fixed
$39
Up to 25 days
 Applied Bank® Secured Visa® Gold Preferred® Credit Card
This secured card can help you rebuild your credit with an initial deposit of $200 to $1,000.
9.99% fixed
$48
0 interest free days
State Department Federal Credit Union (SDFCU) Savings Secured Visa Platinum Card
Created to help you establish or rebuild credit.
13.24% variable
$0
Up to 21 days
SKYPASS Visa® Secured Card
Earn SKYPASS miles while building your credit history in the United States.
17.49% variable
$50
Up to 24 days

Compare up to 4 providers

Adrienne Fuller

Adrienne Fuller leads the publishing team at finder.com. She has one goal: to deliver the accurate and transparent information she wishes she had when she made some of life's important financial decisions. When she's not helping folks save money, she's hiking with her two Catahoulas around her home in San Diego.

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US Credit Card Offers

Important Information*
Deserve® Classic Card
Deserve® Classic Card

APR

24.24
variable

Annual fee

0 For the first year
More info
Luxury Card Mastercard® Gold Card™
Luxury Card Mastercard® Gold Card™

APR

16.49
variable

Annual fee

0 For the first year
More info
The First Access VISA® Credit Card
The First Access VISA® Credit Card

APR

29.99
variable

Annual fee

75 For the first year
More info
Indigo® Platinum Mastercard® Credit Card
Indigo® Platinum Mastercard® Credit Card

APR

23.9
variable

Annual fee

75 For the first year
More info
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