As with all types of borrowing, there are pros and cons to using a credit card. To help you decide whether is a credit card is right for you, we’ve run the both the drawbacks and benefits of having a credit card at your disposal.
Benefits of having a credit card
The benefits of having a credit card range from payment protection to potentially giving your credit score a boost.
1. You are only charged interest if you don’t repay what you owe in full
One of the great benefits of having a credit card. In essence, you are only changed interest on your borrowing if you don’t repay your balance in full each month. So if you only spend what you can afford to pay back, you’ll never have to pay interest like you would with a loan or overdraft.
2. Using a credit card can boost your credit score
If you make at least the minimum monthly repayment on your credit card, using it little and often could give your credit score a boost over time.
3. All credit cards come with purchase protection
Section 75 of the Consumer Credit Act of 1974 ensures credit card users have more protection on purchases. It gives you the right to claim your money back if there’s a problem with your purchase, such as it not arriving or the seller company going bust.
4. Spreading the cost of purchases
Consider credit cards that come with 0% on purchases introductory offers. In short, they help you spread the cost of a large or number of small purchases across the 0% period. Because they charge no interest on spending for the 0% period, you can pay off what you owe in months. But if you don’t clear your balance by the end of the 0% period, you incur usual APR charges on remaining balances.
5. Cashback and rewards
Some credit cards also come with cashback offers and rewards. This could help you save money on purchases or collect points that you can trade in for a whole range of perks, such as concert tickets or airline upgrades.
Drawbacks of using a credit card
When using a credit card, there are some potential drawbacks you need to be aware of.
1. You could get into debt
With a credit card, you can borrow money up to a set limit each month and you’ll need to make at least the minimum monthly repayment to keep your credit score intact.
However, by only making the minimum monthly repayment and not repaying your balance in full, they charge interest on what you owe. If you are unable to pay this back, over time the amount of debt you owe could continue to build.
So when borrowing on a credit card, it’s essential you avoid temptation into use it more than you can afford to repay. If that does happen, you could get into financial difficulties further down the line.
2. You could damage your credit score
You need to make at least the minimum monthly repayment on a credit card to ensure your credit score avoids damage. Missing one payment stays on your credit file for up to seven years. In turn, it affects your future eligibility for loans, credit cards and mortgages, as well as the APR they offer you.
3. Spending restrictions
All credit cards come with fixed credit limits. These will vary from person to person and the credit card provider decides them. Unless they immediately offer the card’s maximum available credit limit, this means your credit limit could increase in the future. However, since there’s a maximum limit on how much you can borrow, a credit card might not be suitable. Especially if you’re looking to borrow a larger amount of money.
When weighing up whether a credit card is the right borrowing option for you, keep in mind both the drawbacks and benefits of having a credit card before making your decision.
Want to find out which cards are available to you? Check your credit card options now without harming your credit score.