Advantages and disadvantages of credit cards
Credit cards can be a smart way to manage your money, spread costs, or earn perks - but they can also lead to fees and debt if you’re not careful. Here’s a rundown of the pros and cons to help you decide whether a credit card is right for you.
Key takeaways
Credit cards can be used for interest free borrowing, as many cards come with a 0% APR period
Paying off a credit card in full each month can boost your credit score over time
Beyond interest rates, credit cards may have additional charges
Missed payments or accumulating debt can harm your credit rating
What are the benefits of a credit card?
Used responsibly, credit cards can offer a range of benefits:
Spread the cost of purchases
Many credit cards offer 0% interest deals, so you can split the cost of a large purchase over several months without paying interest as long as you make the minimum payments on time.
Improve your credit score
Using a credit card and repaying it on time shows lenders you can handle credit sensibly. This can help boost your credit score over time and improve your chances of getting approved for other borrowing, like loans or mortgages.
Earn rewards
Some cards give you rewards or perks, such as points, air miles or cashback on every day spending. However many providers only offer these so long as you make your minimum monthly repayments on time.
Get protection on purchases
If you buy something worth between £100 and £30,000 on a credit card, you're protected under Section 75 of the Consumer Credit Act. This means if the item doesn’t arrive, is faulty, or the company goes bust, you can claim your money back from the card provider.
Manage debts
If you’re already paying off credit card debt, a balance transfer card can help you move what you owe to a card with a lower or even 0% interest rate, making it easier and cheaper to pay off. Experian data suggest that over 10 million people in the UK could save more than £1,300 a year in interest charges with a 0% balance transfer card.
What are the disadvantages of a credit card?
As with any line of credit, getting a credit card can come drawbacks:
Risk of debt
If you don’t repay what you spend, interest charges can quickly build up. It’s easy to fall into a cycle of debt if you rely too much on your credit card or only make minimum payments each month.
Interest rates and fees
Some cards come with high interest rates or added charges, like annual fees, late payment fees, or foreign transaction fees. Be sure to check the APR (Annual Percentage Rate) and any small print before applying.
Damage to your credit score
Missed or late payments can damage your credit score and make future borrowing more difficult. Borrowing up to your limit or applying for too many cards at once can also impact your rating.
Limits on how you can use them
Using your credit card to withdraw cash or make purchases abroad can come with extra costs. A specialist travel credit card may be a better option if you’re spending overseas.
What can I use a credit card for?
You’ll be able to use credit cards in a number of ways that help with everyday spending and long-term financial goals:
Paying for goods and services in-store or online
Making secure contactless payments
Spreading the cost of a large purchase over several months
Building or improving your credit score with regular repayments
Using balance transfers to manage and reduce existing debt
Earning rewards, loyalty points or cashback on everyday spending
Should I get a credit card or a debit card?
A credit card lets you borrow money and repay it later, either in full or in instalments, while a debit card takes money directly from your current account.
If you want to build your credit score, earn rewards, or protect big purchases, a credit card could be a better choice. But if you want to avoid debt and stick to your budget, a debit card may be safer.
Our guide on credit cards vs debit cards explains the differences between them in depth.
What to consider before getting a credit card
Here’s what you need to look at before getting a credit card:
What type of card you need
Consider what type of credit card will suit you best, whether it’s a purchase or rewards credit card for everyday spending or a balance transfer card to manage your existing debt.
Where you’ll be using it
If you’re going overseas you might want to look at travel credit cards.
How much you can afford to spend
Keep in mind what you’ll be able to repay back every month and be sure not to exceed your credit limit. Ideally you’ll want to keep your credit utilisation ratio under 50%.
How long you won’t pay interest
Credit cards can come with 0% interest on purchases or balance transfers for anywhere from six months to three years - but once this finishes, you’ll be back on their standard interest rate.
Whether there are any extra charges
Some cards, especially those that offer rewards or cashback, can also come with extra fees and charges. Check to make sure these don’t outweigh any benefits you’re getting.
Tips for using your credit card wisely
While credit cards can be useful and convenient, they do carry the risk of debt and interest payments. Here are some useful tips so you can get the best from your card and reduce the risk of piling on extra debt:
Set up a direct debit so you never miss a payment
It’s crucial to pay at least the minimum monthly repayment, but if possible try to pay back more. If you can, try to pay off your balance in full every month to avoid interest
Sign up for alerts so you know when your payment is due or if you’re approaching your credit limit
Limit the number of applications you make, as each one leaves a mark on your credit report - too many of these can indicate poor financial health to lenders
Is a credit card safe?
Yes, credit cards offer extra protection for online shopping and fraud.
If your card is lost or stolen, contact your provider right away. You’re not liable for any unauthorised transactions, and your provider can cancel the card and send you a new one. Read more in our guide to credit card security.
Is a credit card right for me?
A credit card can be a smart financial tool if you’re confident you’ll repay what you borrow. It can improve your credit score, give you flexibility for big purchases, and even offer rewards.
But if you’re worried about debt or struggling with repayments, it may not be the right time to get one.
Other useful guides
If you want to step up your understanding of credit cards, we have a range of guides you can read:
How to choose your first credit card
How to apply for a credit card
Compare credit cards with MoneySuperMarket
Finding the right credit card is easy with us. All you need to do is tell us about yourself and your finances, including details about your employment, income, and what you’ll use your new card for.
When you use our eligibility checker search you’ll see which cards you’re most likely to be accepted for and it won’t affect your credit rating.
Once you’ve found the card you want, just click through to the provider to finalise your application. . As soon as your new card comes through the post you’ll just need to activate it – then it will be ready to use.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
Author
Mehdi Punjwani
Insurance specialist
Mehdi is a financial writer and editor with over six years of experience in personal finance. He has written for organisations and publications including Equifax, The AA, and USAToday, covering a...
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Collette Shackleton
Content Writer
Collette Shackleton is a highly skilled Content Writer who has over nine years’ experience creating helpful and engaging personal finance content for consumers. Collette shares her experience as a...
