Pros and Cons of Credit Cards

Men with a credit card
© Paper Boat Creative / Stone / Getty

There are people who love credit cards and people who hate them. People on both sides of the credit card fence have a point. If you’re trying to decide whether to get a credit card or whether to nix credit cards altogether, consider these pros and cons.

Pros of Credit Cards

  • More purchasing options over the phone, via internet, and in person. If you only have cash, you’re limited to in person purchases unless you purchases.
  • Faster to use. Again, compared to cash and especially with writing a check, credit cards are must faster to use. Swipe your card and you’re done in seconds.
  • Ability to pay in installments. While it’s best to pay your credit card balance in full each month, you do have the ability to pay off your balance over a period of time. The exception is with charge cards, which require you to pay in full to keep your card in good standing.
  • The credit boost. If used correctly – making your payments on time and keeping your balance low – credit cards help you build a good credit score that you can use to qualify for a mortgage or auto loan.
  • Funding for emergencies. While not the best option for covering an emergency, a credit card can help you cover an unexpected expense if you can’t afford to pay it from savings.
  • Ability to earn rewards that can be used for cash, gift cards, miles, or other merchandise. The more you use your credit card, the more rewards you earn. You can redeem your rewards as you go or save up for a bigger redemption.
  • Ability to finance items for free when you take advantage of interest promotions. Many credit cards come with 0% interest on purchases and balance transfers for an introductory period of at least six months. This gives you the convenient ability to pay off your balance over time without incurring an extra cost for the convenience.
  • No loss of funds after fraudulent purchases. If a thief gets access to your checking account, they have the ability to drain all the money and you have to wait for the bank to process your fraud report and replace the funds. With a credit card, you may have to wait for the card issuer to clear up the fraud, but at least you still have access to your main source of funding in the meantime.
  • The right to withhold payment for billing errors – as long as you dispute in writing. When there’s an error on your statement, you have the right to dispute it with the credit card issuer. In the mean time, you don’t have to pay for that purchase unless, after you dispute in writing, the credit card issuer’s investigation turns up against your favor. 
  • No need to carry cash. The majority of places accept credit cards, which means you don’t have to stop by the ATM to pull out cash before going out. But keep in mind that some places may not allow you to tip via credit card.

Cons of Credit Cards

With all the benefits that come along with using credit cards, there are some downsides that may turn you off.

  • Temptation to spend more than you can afford. Credit cards open up additional purchasing power and give you the illusion that you have more money than you really do. Studies have shown that people are more willing to spend with credit cards than other forms of payment.
  • They reduce your future income. Each time you use a credit card – or any form of debt – you’re borrowing from money that you haven’t earned. A portion of your future income has to go toward repaying your credit card balance, if you want to protect your credit.
  • The terms can be confusing. A person who’s not used to reading credit card agreements can easily be confused by the phrasing and the jargon. Understanding credit card terms is important to using the credit card in a way that doesn’t put you at risk of fees.
  • Fees and interest can be expensive. Depending on the credit card and how you use it, your credit can cost hundreds of dollars over the course of a year. This is why understanding the credit card terms is so important – so you know how to avoid credit card fees.
  • Potential for credit card fraud. Just having a credit card puts you at risk of credit card fraud. Thieves don’t have to steal your credit card to get your information. They can hack store where you shop or websites that you’ve used your credit card to steal your card details and use it to make fraudulent purchases. (You’re typically not liable as long as you report the charges right away.)
  • Potential for debt. You create debt each time you use your credit card. You can keep the debt from growing by paying off your balance each month, but if you only pay the minimum and keep making purchases, your debt will grow.
  • Misuse can ruin your credit score. Your credit score is tied directly to how you use your credit card. If you run up big balances and pay your credit card late, your credit score will be impacted.

While credit cards have some negative aspects, they can be minimized as long as you’re smart with the cards you choose and use them wisely.