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

Benefits and disadvantages of a credit card

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

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.

Advantages versus disadvantages

Should I use a credit card?

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

Name Product APR for Purchases (Purchase Rate) Intro APR for Balance Transfer Annual Fee
14.74%, 18.74% or 24.74% variable
0% for the first 15 months (then 14.74%, 18.74% or 24.74% variable)
$0.00
Earn unlimited 1.5% cash rewards on purchases. See Rates and Fees
12.74%, 16.74% or 20.74% variable
0% for the first 18 months from account opening (then 12.74%, 16.74% or 20.74% variable)
$0.00
An 18-month 0% Intro APR period on both purchases and balance transfers, plus zero foreign transaction fees, makes this is a strong well-rounded card. See Rates and Fees
16.74% variable
0% for the first 15 billing cycles (then 16.74% variable)
$495.00
Mastercard Black Card members receive an annual $100 air travel credit toward flight-related purchases including airline tickets, baggage fees, upgrades and more.
16.74% variable
0% for the first 15 billing cycles (then 16.74% variable)
$195.00
Enjoy unique excursions, privileged access to exclusive events and insider opportunities.
16.74% variable
0% for the first 15 billing cycles (then 16.74% variable)
$995.00
Earn points every time you spend. Luxury Card enhances your purchasing power by providing you with one (1) point for every one dollar ($1) you spend. Every purchase gets you closer to the rewards you want.
24.49% variable
$39.00
Designed to help build credit history with no deposit required and access to benefits.
23.90% variable
$75.00 annual fee for the first year ($99.00 thereafter)
With this card you get a 23.90% Variable APR.
29.99% variable
$75.00 annual fee for the first year ($48.00 thereafter)
Access credit even if you have poor or limited credit history.
17.49% to 25.49% variable
Up to $75.00 annual fee for the first year (up to $99.00 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.
14.74% to 25.74% variable
0% for the first 15 months (then 14.74% to 25.74% variable)
$0.00
Earn 15,000.00 Membership Rewards® Points after you use your new Card to make $1,000 in purchases in your first 3 months.
14.74% to 24.74% variable
0% for the first 12 statement closing dates (then 14.74% to 24.74% variable)
$0.00
Earn more cash back for the things you buy most.
14.74% to 25.74% variable
0% for the first 15 months (then 14.74% to 25.74% variable)
$0.00
Earn $150 back after you spend $1,000 in purchases on your new Card in your first 3 months. You will receive the $150 back in the form of a statement credit.
17.74% to 24.74% variable
$0.00 annual fee for the first year ($95.00 thereafter)
Earn 50,000.00 points when you spend $4,000 on purchases within the first 3 months of your account opening, and an additional 30,000 points when you spend a total of $30,000 on purchases within the first year of your account opening.
17.74% to 24.74% variable
$450.00
Earn 50,000.00 BONUS POINTS after spending $4,000 on purchases in the first 3 months from account opening* — that's $750 toward travel when you redeem through Chase Ultimate Rewards®.
14.74% to 24.74% variable
0% for the first 12 months (then 14.74% to 24.74% variable)
$95.00
Earn 15,000.00 Membership Rewards Points after you use your new Card to make $1,000 in purchases in your first 3 months.
16.74% to 25.49% variable
0% for the first 15 months (then 16.74% to 25.49% variable)
$0.00
Earn unlimited 1.5% cash back on every purchase - it's automatic. No minimum to redeem for cash back.
17.49% to 24.49% variable
$95.00
Earn unlimited 2 points for every $1 spent on travel and dining purchases and 1.5 points for every $1 spent on all other purchases.
14.49%, 20.49% or 24.49% variable
0% for the first 15 months (then 14.49% to 24.49% variable)
$0.00
Earn unlimited 1.5% cash back on every purchase, every day
16.74% to 25.49% variable
0% for the first 15 months (then 16.74% to 25.49% variable)
$0.00
Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate and unlimited 1% cash back on all other purchases.
16.49% to 24.49% variable
$0.00
20,000 online bonus points offer. Ditch the restrictions of typical airline rewards cards. Any airline, any hotel, anytime. No blackout dates.
16.74% to 25.49% variable
0% for the first 15 months (then 16.74% to 25.49% variable)
$0.00
Jumpstart your financial fitness! 60 day introductory balance transfer offer, save on interest, and get your free monthly credit score.
14.49%, 20.49% or 24.49% variable
$0.00 annual fee for the first year ($95.00 thereafter)
Earn 50,000.00 bonus miles once after spending $3,000 on purchases within the first 3 months from account opening.

Compare up to 4 providers

Name Product APR (Annual Percentage Rate) for Purchases Annual Fee
24.15% fixed
$0.00
A no annual fee credit card and discounts when you shop at Target.
29.99% fixed
$0.00
The Fingerhut Credit Account is store-specific, and used to finance purchases made from Fingerhut.com or Fingerhut FreshStart's catalogue.
29.99% fixed
$0.00
Helps you keep building your credit as you buy great name brand products.
29.99% fixed
$0.00
Get instant access to purchase items in the Fingerhut store with no overlimit fees.
$0.00
Get a $500.00 credit limit to make purchases on the Horizon Outlet website.
$0.00
Looking for the best card? You can have it while you build your credit with Horizon Card Services. Get an unsecured line of credit and the best customer service!
$0.00
Shop the items you need at myuniqueoutlet.com with up to a $1,000.00 credit.
$0.00
Get a $300.00 to $5,000.00 instantly to shop 100,000+ items at Emporium.
24.40% variable
$0.00
28.49% variable
$0.00
6, 12, 18, and 24-month financing options available and special promotions just for cardmembers.

Compare up to 4 providers

Name Product APR for Purchases (Purchase Rate) Intro APR for Balance Transfer Annual Fee
11.65% to 21.65% variable
$35.00
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.
11.65% to 27.65% variable
$0.00
Earn 2X points per dollar spent on gas and dining Earn one point for every dollar spent on all purchases Get 2,500 bonus points with your first purchase.
13.65% to 27.65% variable
$0.00
Earn 1.5% cash back on every purchase with no limits or category restrictions. Pay no annual fee, no penalty APR and no foreign transaction fees.
8.65% to 25.65% variable
$0.00
This card offers the same low rate for purchases, cash advances and balance transfers.
11.65% to 27.65% variable
$0.00
You can get cash back (unlimited) on groceries and gas and on most purchases and get car rental insurance as well.
11.65% to 21.65% variable
$35.00
You can get travel benefits (no foreign transaction fees), retail benefits and collision damage waiver coverage on your rental car.
13.65% to 27.65% variable
$0.00
Earn $150 bonus after you make $500 in purchases within the first 90 days of opening your account.
12.65% to 27.65% variable
0% for the first 12 months (then 12.65% to 27.65% variable)
$0.00
Earn 2,500 bonus points credited to your account with your first purchase and then 1 point per $1 spent. No expiration date.
12.40% to 27.40% variable
0% for the first 12 months (then 12.40% to 27.40% variable)
$0.00
This card lets members show their support for The American Legion. Earn one point for every dollar spent on your everyday purchases. Get 2,500 Bonus Points after your first purchase.
12.40% to 27.40% variable
0% for the first 12 months (then 12.40% to 27.40% variable)
$0.00
Get 2,500 Bonus Points after your first purchase. Start earning 1 point for every $1 spent. Redeem your points and donate to your favorite military affiliate group.

Compare up to 4 providers

Name Product APR (Annual Percentage Rate) for Purchases Welcome Bonus Interest Free Period
9.99% fixed
Up to 25.00 days
Low fixed interest rates with no penalty rate.
9.99% variable
Up to 25.00 days
You can increase your credit limit by adding funds to the initial deposit.
18.89% variable
Up to 25.00 days
A secured Visa® credit card that helps you build your credit quickly.
9.99% fixed
Up to days
This secured card can help you rebuild your credit with an initial deposit of $200 to $1,000.
19.99% variable
Up to 25.00 days
With just a security deposit and 19.99% APR, start building or rebuilding your credit history.
17.99% fixed
Up to 25.00 days
Borrow up to $10,000.00 and get your credit score back on track.
13.49% variable
Up to 21.00 days
Created to help you establish or rebuild credit.
17.99% variable
Earn 5,000.00 points after spending $0.00 in the first 0 days
Up to 24.00 days
Earn SKYPASS miles while building your credit history in the United States.
First Latitude Platinum MasterCard® Secured Credit Card
First Latitude Platinum MasterCard® Secured Credit Card
25.99% variable
Up to 25.00 days
Enjoy no annual fees while building your credit

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

24.49
variable

Annual fee

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

APR

16.74
variable

Annual fee

995 For the first year
More info
First Access Visa Card®
First Access Visa 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
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