Pros and cons of using credit cards

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In a Nutshell

Credit cards offer benefits such as cash back rewards and fraud protection. But if mismanaged, credit cards can lead to debt, interest charges and damage to your credit.

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It’s important to know the pros and cons of credit cards if you want to use them to your advantage.

Building credit, earning cash back and benefiting from fraud protection are just a few of the many advantages of using credit cards.

Tack on the convenience of not having to carry cash and the ability to easily track spending, and you may ask yourself why someone would ever choose to put purchases on anything but plastic.

Using a credit card can definitely make life easier, but it also puts a large responsibility on the spender. If misused, credit cards can leave you with debt, fees and poor credit. Knowing the pros and cons of credit cards can be the first step to making sure you benefit from using plastic.

Credit card pros Credit card cons
Can help you build credit if you’re careful about the way you use the card Access to credit could lead to debt and spending beyond your means
May earn rewards Typically need to pay interest if you carry a balance month to month
Protection against unauthorized charges Spending too much on your card or missing a payment can negatively impact your credit scores
Enables you to leave cash at home Fine print can be confusing
Lets you track your spending

Pros of using credit cards

Understanding the many advantages of using credit cards is essential to actually benefiting from them.

Build credit: Credit cards, when used properly, can help you build credit. Using credit is generally a requirement for building credit. When you have good credit, the benefits can include better interest rates on mortgages, auto loans and credit cards, among other things.

Earn rewards: Credit cards can earn you rewards in the form of cash back or points, all for spending as you normally do. Many popular cards also offer sign-up bonuses that provide a large number of points if you meet the spending requirements within the specified time frame.

For example, the Capital One® QuicksilverOne® Cash Rewards Credit Card is a great card for spenders looking to get started with a simple rewards program. This card offers 1.5% cash back on all purchases, so you won’t have to worry about using the right card on the right purchases to earn cash back. Just watch out for the annual fee ($39).

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Fraud protection: In many cases, credit card companies have safeguards designed to help protect you and your purchases from credit card fraud. If you notice charges you don’t recognize, call your credit card company. If you can’t find your card, be sure to report it lost or stolen as soon as possible.

Under the Fair Credit Billing Act, liability for unauthorized purchases on your credit card is limited to $50. If the card is reported lost or stolen before transactions are made, the card owner is not responsible for any charges they didn’t authorize. If it turns out the credit card number is stolen, but not the actual credit card, the card owner won’t be responsible for any unauthorized charges.

Debit cards offer similar (but much-more-limited) protections under the Electronic Fund Transfer Act. If a debit card is reported lost or stolen before any unauthorized charges are made, the card holder is not held responsible for any unauthorized transactions. If it’s reported within two business days after the card holder learns their card was lost or stolen, the loss is capped at $50.

If you report the card has been lost or stolen more than two business days but less than 60 calendar days after receiving the statement showing the first unauthorized use, you may be responsible for up to $500 of unauthorized use. But if you wait to report the loss more than 60 calendar days after receiving the statement showing the first unauthorized use, your liability could be unlimited.

Basically, credit cards offer a much better guard against unauthorized use than do debit cards.

Don’t have to carry cash: Using a credit card is often more convenient than using cash, and it’ll often take up less space in a wallet than a wad of bills.

“Credit cards are a great consumer spending tool because they are generally accepted in most retail and business situations worldwide,” says Jamie Hopkins, professor of retirement planning at the American College of Financial Services.

Credit cards can be in your pocket at all times, ready to go whenever. Plus, if you lose your card, your issuer can just send you a new one. That’s not the case with cash.

Track your spending: “Because credit cards provide a detailed report on where and how much you spent, it can actually make budgeting easier than using cash,” Hopkins says.

All purchases on a credit card are tracked and recorded by the issuer. Having your transaction history — including the name of merchants, amounts spent and dates — can make understanding your spending a lot easier than recording every cash transaction on a ledger.

Plus, there are tons of apps that use your spending to automatically create budgets, track subscriptions and help you get a better idea of how you spend your money in general. But you need to have a record of your spending in order for the apps to work, and a digital record can often seamlessly integrate with the program and allow the app to work automatically.

Perks: Most credit cards come with extensive perks, such as fraud protection, price protection and extended warranties.

Credit cards with travel benefits often include such perks as rental car insurance, roadside assistance and lost or delayed baggage insurance, among many others.

Cons of using credit cards

Credit cards aren’t all rewards and sign-up bonuses, though. They are serious financial tools that can lead you to rack up debt and fees if misused. It’s important to know the problematic side of credit cards. 

Potential to overspend: Credit cards can seem like infinite pools of money — and will get you into serious debt if you treat them as such. So if you do use a credit card, it’s best to keep tabs on your purchases to make sure you don’t spend beyond your means.

Can fall into debt: Overspending on a credit card is one of the most common ways to get into debt — and “in debt” is probably not a place you’d like to be. 

One way to help prevent getting into debt is to create a budget and periodically check in on where your money has gone. Monitoring your spending can at least help you keep regular tabs on how and where you’re spending. Whether you use that information to curtail unaffordable cash outflows is up to you.

Fees and interest: Overspending can lead to carrying a balance — something that usually leads to being charged interest on that balance.

“Credit cards are a poor source of anything more than very short-term credit as they have very high interest rates,” says Dr. James Philpot, CFP and associate professor of finance and general business at Missouri State University.

Interest (and fees) can grow a balance to the point where it can get beyond the spender’s control.

Beyond interest, many credit card issuers charge fees for late payments, balance transfers, cash advances and foreign transactions, among other things. Some issuers even charge an annual fee just to use the card.

The best way to avoid interest and many of the fees that will get you into trouble is to pay off your balance in full by the due date every month. If that’s not possible, at least make the minimum payment on time to keep your account in good standing.

Can negatively affect credit scores: Improperly using a credit card can negatively affect your credit scores, which can reduce your chances of getting the best rates on (or even being approved for) things such as mortgages, auto loans and personal loans.

Some behaviors that can hurt your credit scores include paying your bill late, not paying your bill at all, and using too much of your available credit. There are plenty of other factors that go into credit health, but certain factors are almost directly tied to credit card use.

Setting up autopay for at least your card’s minimum payment amount can be a good way to avoid inadvertently missing a payment. Just be sure the source account has enough money to cover the payment or else you may have to pay overdraft fees — which could put you in a worse position than where you started.

Confusing fine print: Reading a credit card’s fine print can feel like trying to translate a foreign language. While the most important card details are typically formatted in an easy-to-read Schumer box — a summary of a credit card’s costs — other information may be lost in a pool of industry jargon.

For some, this text can be intimidating and even a deterrent to signing up for a card. Fortunately, there are plenty of third-party companies — like, ahem, Credit Karma — that offer unbiased breakdowns on many financial products. These could prove to be invaluable resources when navigating the jumbled terms and conditions.


Bottom line

Like most things in life, there are pros and cons to using credit cards. If you’re smart about how and when you use your plastic, a credit card can prove to be an essential and useful financial tool.

If you allow your spending to get ahead of you and you’re not organized when managing payments and accounts, credit cards may do more harm than good.

If and when you decide to apply for a credit card, make sure you pick the one that’s best for you.