The advantages and disadvantages of Credit Cards

There are numerous advantages to having a credit card, but there are disadvantages too.

The key is weighing these up against each other, so you have a better idea of whether or not a credit card is right for you, and which type will best suit your needs.

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Advantages

Disadvantages

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It's fast

You don’t have to worry about going to queue at a cashpoint to get the money you need to make a purchase, as you can pay for your purchase on your credit card.

Make sure to pay the balance in full each month or you could be faced with charges/interest.

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"Most providers charge interest on cash withdrawals too - from the date of the withdrawal."

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It's convenient

The majority of credit cards are accepted in most shops. Credit cards are also an accepted form of currency in most countries (however check with your provider first, as there may be charges associated with using them abroad).

This makes them a particularly convenient form of payment as you don’t need to worry about having different payment methods available depending on where you shop, or investing in a new currency before you travel abroad.

It's flexible

You can pay off your credit card in the way that best suits you. The most economical way to do this is to repay the balance in full every month so you avoid paying interest. However, if you use it to make a large purchase you couldn’t afford to pay for all at once, you can repay the balance in monthly instalments; spreading the cost to make it more manageable.

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"This is an alternative to a credit card, in that there is no interest rate or spending limit"

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It's there in an emergency

You don’t have to worry about always having cash on you when you have a credit card. Whatever you need money for, you can usually pay using your credit card.

This means that if you see a dress in a shop that you have to have – and it’s the last one left – or a sofa that’s on sale today only but you don’t have any money on you and you don’t know where the nearest cashpoint is, you don’t have to worry. Providing you know you can afford it, simply pay for it with your credit card.

Some people also like to have a credit card in the event of an emergency when they may not have the money available in their bank account. 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, rather than waiting for the next payday.

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

It provides protection

Unlike when you make purchases using a debit card or cash, when you use your credit card you have the added protection of Section 75.

This is a clause of the Consumer Credit Act that means that if you buy something that is then never sent to you, arrives faulty, broken or not as it was described, or if the company providing it goes bust, you are entitled to a refund through your credit card provider.

Section 75 was created to ensure that people do not have to repay money for something they haven’t even been able to use. While 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, it may be reassuring to know that with a credit card you also have the protection of your lender.

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"Never share your PIN number with anyone"

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It helps you build your credit rating

Providing you use your credit card responsibly you can build up a healthy credit rating. This is a score based on your history of borrowing and repaying money, and is one of the tools lenders use to decide whether or not to lend to you.

If your credit history shows evidence of missed payments and defaults, you may find your score is low and as a result you could struggle to get the deals you want when you borrow. However, if you have a credit card or other form of borrowing that you use responsibly and pay on time every month, you can show lenders that you can be trusted to borrow.

If your current credit rating is lower than you’d like and you’ve struggled with borrowing in the past or if you have no credit history to speak of, don’t be too disheartened. There are credit-builder credit cards, such as the Ocean Credit card, available that you might be eligible for.

These are usually no-thrills cards with a higher interest rate and lower maximum allowance than many other cards, but you can use them to borrow money and, providing you stay on top of your repayments, you may find they help you improve your score. However, not doing so could harm your credit rating.

It charges

A credit card is convenient, flexible and comes with a host of benefits, but it’s no free meal ticket. Whatever you spend you have to pay back and the charge for this is the interest.

Credit card interest rates vary greatly depending on the card, the lender and your own eligibility as a customer. However, no matter what the interest charged, you may avoid paying any of it if you clear your balance on time and in full each month within the interest-free period. This can make using a credit card far more economical.

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"never spend more than you can afford to repay"

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It's not your money

Just like a credit card is not a free meal ticket, it’s also not your money you’re spending – and it’s important not to forget this.

When you buy something using your credit card, you’re in debt to your lender for that sum. Try to clear the balance as soon as you can so you can get out of the red, and never spend more than you can afford to repay.

Introductory rates can change

As with any product, lenders want their credit card to stand out from the crowd. That means that there are many different interest rates and rewards to choose from, which can be confusing.

However, before you get sucked into what appears to be the best offer, take care to check how long this introductory rate 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, the interest goes up and you still have money to pay. Always aim to clear your balance within the introductory period to save as much money as possible.

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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.

This is usually between 1% and 3% of what you withdraw and you could be charged interest immediately, rather than having an interest-free period. Another reason to avoid using your credit card at the ATM is that it can have negative consequences for your borrowing profile.

A lender may think you’re borrowing to withdraw cash because you don’t have the money you need in your account, which they could see as a danger sign.

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.

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It's easy to borrow too much

Have you ever found that you’re more careful to avoid overspending when you’re using cash than when you’re using plastic?

This is because you can see the money leaving your hand, and so it is easy to keep track of. When using a credit card, be sure to be vigilant and keep track of what you spend, as it can be tempting to splash out more than you planned. As we’ve said before, only spend money you know you’ll be able to pay back.

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It may harm your credit rating

because when you spend with a credit card you’re borrowing, if you don’t use it responsibly you could end up in trouble.

Borrowing more than you can afford and then only making the minimum repayments can mean it takes you a very long time to clear the balance – and you’ll probably pay a lot of interest doing so. If you don’t even make the minimum repayments charged by your lender, you could quickly find your finances are in trouble.

The interest will continue to add up and your lender may also impose penalties for the missed payments, meaning you have to pay back even more. Once you’ve defaulted on a few repayments, your credit rating could be negatively affected, which will make borrowing in the near future difficult – and if you continue to fail to pay back what you owe your lender may even take legal action against you.

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Know if you're accepted before you apply with QuickCheck

  • Get credit - up to £1,500
  • QuickCheck won’t affect your credit rating
  • Get a fast response in 60 seconds
Check Now 34.9% APR Representative (variable)
Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender