The advantages and disadvantages of credit cards

There are numerous advantages to having a credit card, but there are disadvantages too. The key is to weigh these up against each other, so you have a better idea of whether a credit card is right for you, and which type will best suit your needs.

6 min read
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What are the advantages of using a credit card? 

1. Convenient 

Credit cards are accepted by most retailers and are an accepted form of currency in most countries. However, you should check with your provider before you travel, as there may be charges associated with using them abroad. 

This makes a credit card a particularly convenient way to pay, as you don’t need to worry about having different payment methods available when you go shopping. Plus, you don’t have to invest in a new currency before you travel abroad. 

2. Flexible repayment options 

You have two options when it comes to paying your credit card each month: 

  1. repay the balance in full every month – that way you can avoid being charged interest
  2. repay the balance in monthly instalments - spreading the cost to make it more manageable 

Tip: Ideally, clear the full outstanding balance each month to avoid any interest. If this isn’t possible, you should at least pay the minimum amount to avoid late fees (though interest will still apply). 

3. Useful in an emergency 

You don’t need to always carry cash on you when you have a credit card. Whatever you need money for, you can usually pay using your credit card - providing you’re within your credit limit and you know you can afford it. 

Some people like to have a credit card for peace of mind, in case of an emergency. For example, if their car breaks down or their central heating packs up, they can pay for the repairs they need immediately with their credit card. 

Again, it’s important you’re able to meet your repayments in these scenarios, and ideally you should pay the balance off in full to avoid the added cost of interest. 

4. Added protection 

When you use your credit card you have the added protection of Section 75 of the Consumer Credit Act. This could entitle you to a refund through your credit card provider if you buy something that is: 

  • never sent to you
  • arrives faulty, broken or not as it was advertised 
  • from a company that has gone bust

Section 75 was created to ensure that people do not have to pay for an item or service that they haven’t been able to use due to circumstances out of their control.  

When you pay with cash, debit card or credit card you can request a refund from the vendor if something goes wrong with your purchase. However, it may be reassuring to know that with a credit card you also have the protection of your lender (which you don’t with a debit card or cash). 

5. It can help to improve your credit score 

Providing you use your credit card responsibly you can build up a healthy credit history. This will boost your credit score and your attractiveness to lenders. It will show lenders that you are a reliable borrower who can be trusted to pay their bills on time. 

If your current credit rating is lower than you’d like or you’ve got a thin credit history, don’t be too disheartened. There are credit builder credit cards available that you might be eligible for. If you stay on top of your repayments, one of these cards may help you improve your score. 

Bear in mind, lenders tend to charge higher interest rates and offer lower maximum credit limits to those with poor credit. Also, not maintaining repayments could harm your credit rating. 

What are the disadvantages of using a credit card? 

1.  Interest rates 

A credit card is convenient and flexible, but interest will be applied to your balance (unless you clear it in full each month or you are in a 0% introductory period). Credit card interest rates vary depending on the card, the lender and your own eligibility as a borrower.  

2. It’s borrowed money 

When you buy something using your credit card, you become indebted to your lender for that sum (plus interest). Try to clear the balance as soon as you can, and never spend more than you can afford to repay.  

3. Introductory rates can change 

Before applying for an introductory offer, check how long the deal lasts for. You might take out a card with a 0% interest rate, only to find you’re stung six months later when the offer ends and the interest goes up.

Always aim to clear your balance within the introductory period to keep the cost of borrowing low. 

4. It costs to withdraw cash 

Wherever possible you should avoid using your credit card to withdraw cash. While it’s often free to do this with a cash or debit card, this is not the case with a credit card - and there can be unexpected fees involved. 

These withdrawal fees are usually around 3% of the amount you withdraw, and you could be charged interest immediately (even if you’re in an interest-free period).

Another reason to avoid using your credit card at the cash machine is that it can negatively impact your credit history. Plus, a lender may think you’re borrowing to withdraw cash because you don’t have the money you need in your account. This could show up as a red flag to them. 

If you have any plans to borrow in the future, avoid withdrawing cash on your credit card or you may find you’re less likely to be accepted for the deals you want. 

5. It may harm your credit score – if used irresponsibly 

Borrowing more than you can afford and then only making the minimum repayments can mean it takes you a long time to clear your outstanding balance. Plus, you’ll probably pay a lot of interest in doing so.  

If you pay less than the minimum payment on your card, you could quickly find yourself in financial difficulty. The interest will continue to add up and your lender may also impose penalties for the missed payments, meaning you’ll have to pay back even more overall.  

If you miss three to six payments and a default is registered on your credit file, then you are likely to find it more difficult to get accepted for credit in the future.   

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Disclaimer: All information and links are correct at the time of publishing.

Adele Kitchen, Personal Finance Writer

Adele Kitchen

Personal Finance Writer

Adele is a personal finance writer with more than 10 years in the finance industry behind her. She writes clear and engaging guides on all things loans for Ocean, as well as contributing blogs to help people understand their options when it comes to money.