I use A Credit Card By increasing your credit score and earning rewards, it is one of the best ways to improve your overall financial health.
If you approve a credit card, the card issuer will expand your credit line. At the end of each monthly billing cycle, you must repay that balance. Otherwise, interest will start to rise.
High credit card interest rates and the speed at which you can increase your debt balance are the downsides of credit cards. However, if you pay your balance on time, you can enjoy benefits such as rewards and a strong credit score.
Here are the advantages and disadvantages of credit cards to keep in mind when deciding whether you are You need to get a credit card:
Pros and cons of credit cards
If you use it responsibly, Best credit card There are benefits and convenience, but there are risks too. Check out these advantages and disadvantages of credit cards.
Credit card pro
The benefits of these credit cards help you get extra value from your card.
Credit building opportunities
Credit cards can be a tool Create a credit Over time, your credit score can have a major impact on your financial life.
Having excellent credit will help you qualify for future loans, such as car loans and mortgages. a Good credit score It also helps you get more favorable terms, such as lower interest rates, on the money you borrow.
To create credits using a credit card, it is best to pay the minimum amount and lower it at least by the monthly due date. Credit usage rate. Card issuers regularly report account activity to Three major credit bureaustherefore you’ll want to build a consistent, positive history.
Unlike credit cards, debit card activities are not considered in your credit score. So, the best way to build credits is to use them.
Reward
Having the right credit card in your wallet will earn cashback, points, or miles on regular purchases. When you open Reward Credit Cardyou can get a welcome bonus after reaching a certain expenditure threshold.
However, before choosing a card with the best welcome bonus or reward rate, you want to start by looking for a credit card that suits your usage. For example, frequent travelers may benefit from a Travel credit cards It offers points or miles for future trips. Other shoppers may get more value from a Cashback Card There are rewards in categories such as grocery, gas, entertainment.
Travel benefits
Some credit cards have added travel perks that could be a great help for your next trip. These include:
- Travel insurance
- There are no foreign transaction fees
- Lounge Access
- Statement credits for programs such as Global Entry and TSA Precheck
- Save money with partner brands
Kyle Enright, president of lending, a Personal loan and Home Equity Credit Line Lenders point out how valuable credit cards are available when traveling.
Fraud protection
Consumer Credit Card Protection Buying daily with a credit card makes it a safer option than cash.
Most credit cards come with zero-risk fraud protection against unauthorized fees, as long as you report the fee within 30 days. Even if your publisher doesn’t give you zero responsibility, Fair Credit Request Activities Limits total liability for unauthorized claims to just $50.
Additionally, if you charge fraudulent fees for your credit card account, you may be able to resolve the issue before your balance is extended and your actual money is lost. However, if your debit card is stolen, it can take some time to resolve the issue as you will have to wait for the funds to be returned to your bank account.
Additionally, “credit cards help you avoid carrying a significant amount of cash around,” Enright says. And if cash is stolen or lost, it will likely be gone forever.
Purchase Protection
Purchase protection is separate Hidden perks It appears on most credit cards. If an item purchased with a card is stolen or damaged within a specific period (usually within 90-120 days), you can receive a replacement or refund.
Please note that this bonus usually has annual or lifetime limits and per-patrol limits. Purchases of certain types, such as electric vehicles, antiques, and second-hand items, may be excluded.
A break of potential interest
Some credit cards also offer a 0% Introductory APRCardholders can avoid qualifying balance transfers, new purchases, or promotion periods (usually interest for 12-21 months). If used correctly, Best 0% APR Card It can help you pay off high-profit debts and make large purchases over time.
Enright recommends that you fully repay the balance before the intro period ends. Interest rates could then skyrocket.
When the intro offer ends, you don’t want to deepen your debt. And if you don’t make the minimum payment, the publisher may cancel your promotional rate and hit you with a high Penalty APR.
Cons of credit cards
Credit cards can add value to your spending, but using them is risky. Some drawbacks of credit cards include:
High interest rate
Credit cards are well known for their high interest rates. now, Average credit card interest rate Some cardholders have their APRs even higher, but just over 20%.
Most credit cards have fluctuating interest rates, so interest rates usually change over time, based on government changes. Prime Rate. If you have a balance on your credit card, you will be paying interest on the remaining money. And interest can deteriorate until the balance is repaid and can quickly become expensive.
Fee
Interest rates are not the only costs that can be incurred with a credit card. The card issuer may charge late fees, foreign transaction fees, balance transfer fees, etc. Be sure to read the terms of use of your card to know Fees you encounter And how to avoid them.
Also, many premium credit cards charge an annual fee paid annually for the privilege of having a card. In many cases, the value you earn in compensation and benefits can offset your costs, but make sure you have a budget before applying. You can also consider A There are no annual fee credit cards.
Liability risk
High credit limits can invite temptation into overexpenditure. However, at such a high interest rate, Overexpense It can be an expensive mistake.
If you tend to overuse, spend only what you have in the bank and create a budget that allows you to pay back your balance at the end of the billing cycle. Then, you start tracking your expenses throughout the month and go well.
You can avoid the pitfalls of credit card debt by spending only what you can afford to pay off completely each month.
Deferred interest
Some Co-branded cards and I’ll store the card – Give rewards when shopping at a specific store or brand. We promise to raise funds without interest fees during the promotion period. However, these offers should not be confused with 0% APR credit card transactions. The issuer tracks your purchase interest from the moment you receive your card. If you don’t pay your entire balance by the end of the promotion period – even if you only have one dollar left, you’re on the hook for that profit.
spot Deferred interest You will be promoted for languages such as “No interest if the full amount is paid” or for promises that you have no interest in for a certain number of months. Losing these clues or not paying for the entire remaining balance before the promotion period ends can be costly.
Risk of loss of credit score
There are many ways to build credit cards, but it can also hurt your credit score with bad credit habits, such as creating a positive payment history, keeping your credit usage low, and adding it to your credit mix.
For example, looking at your ideal credit utilization rate can have a negative impact on your score. Experts recommend using less than 30% of the available credits. If you have a credit limit of $5,000, that means you keep your balance below $1,500.
You can also temporarily reduce your score by applying for multiple credit cards at once Hard Credit Inquiries. Multiple recent credit applications could also be red flags for lenders.
Of course, if you are late in your payment or at least not pay the minimum, your credit score will be compromised.
Tips for using your credit card responsibly
If you want to avoid the pitfalls associated with having a credit card, you should make sure you use it responsibly.
In addition to paying your bills on time each month, you’ll want to keep an eye on your spending so you don’t realize you’ve accidentally maximized your card, especially if your credit limit is low. By keeping your spending habits down and paying bills monthly and hopefully fully, you can build your credit responsibly without falling into unsustainable debt.
Conclusion
Credit cards can be a great financial tool if used with caution. Not only can you build a positive credit history, but using the right cards will allow you to earn rewards for your daily spending and gain value from the added benefits. Credit cards also act as record keepers, and there are statements that allow you to easily look back on your spending over the course of months or years.
Don’t forget that using a credit card may have drawbacks. It’s easier, more expensive and can hurt your credit card to get into debt.
If you’re ready for a new card and feel you can manage all the advantages and disadvantages of a credit card, you can use it Bankrate’s Card Match Tool To prequalify for multiple cards, find the one that suits you.
