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Credit cards advantages and disadvantages

Credit cards advantages and disadvantages

When you compare credit cards, it’s important to understand the advantages and disadvantages of having one before you apply. Read our guide to the benefits of having a credit card and the things to watch out for.

Anelda Knoesen
From the Money team
minute read
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Posted 9 JANUARY 2020

Credit card pros and cons

When you get a credit card it’s important to understand both the benefits and the pitfalls to ensure it’s the right choice for you. Pros can include spreading the cost of your purchases, but cons can include racking up debts that you struggle to pay off.

What are the advantages of having a credit card?

The advantages of having a credit card can include:

Spreading the costs of purchases: you can buy something today, then repay the money over several months. This can come in handy, especially in an emergency, like needing to replace your boiler or buying a new fridge.

Interest-free borrowing: some credit cards come with an interest-free period on purchases. So if you use your card and pay the money back within the period, you won’t have to pay any interest. However, you will need to ensure that you can keep up the repayments once the introductory period ends.

Switching your balance: you many be able to avoid paying interest on an outstanding credit card balance by switching to a card that offers 0% on balance transfers. There will be a fee for making the transfer, and it’s important to pay off the balance before the interest-free period ends, as after that you’ll be subject to higher interest rates. It’s important to check your eligibility before applying for a balance transfer card.

Purchase protection: this is one of the biggest benefits of using a credit card. Under the Consumer Credit Act, you’re protected if you use your card to buy something that costs more than £100 and less than £30,000, and something goes wrong. For example, if it doesn’t arrive, is damaged or the company goes into administration.

Earning rewards: reward cards offer loyalty bonuses, air miles or even money off your weekly food shopping. Be aware though, that if you don’t pay off your balance in full every month, the interest you pay may outweigh the value of the rewards.

Building a credit profile: provided you’re responsible with your credit card – not exceeding your limit and always making repayments on time – you can use your card to start building a credit profile. This will help show lenders you’re a responsible borrower.

What are the disadvantages of having a credit card?

There are also disadvantages in having a credit card, as with any credit, borrowing now and paying later can come with risks. These include:

Debt: The biggest disadvantage of having a credit card is falling into debt that you can’t get out of. This can happen by having a credit card that you can’t afford; by not keeping up with the monthly repayments or not being able to pay off the balance in the 0% interest-free period, and then being hit by high interest rates.

Damaging your credit score: failing to keep up with your repayments will not only put you at a risk of debt, it will also be reflected on your credit file and can affect your chances of being accepted for loans or other credit.

Credit card costs: make sure you’re aware of all of the costs that come with having a credit card, not just the interest on borrowing. Costs can include going over your credit limit, late payment fees, cash withdrawal fees, fees for balance transfers and fees for using your card abroad. Find out more about common credit card charges.

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