Pros and cons of using credit cards

What are the advantages and disadvantages of using credit cards?

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Credit cards can be a useful way to manage your finances, but there are some things to consider before you start using one. Here’s what you should know.

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What is a credit card?

A credit card is a type of bank card that lets you borrow money – credit – before paying it back with interest. They work as a type of loan, but instead of getting money in an account you get credit that you spend via the card, before paying back what you owe each month.

Types of credit card

There are a number of different types of credit cards designed for different people and purposes, including cards that:

The type of credit card you need will depend on your own circumstances – learn more about what’s on offer with our guide to types of credit cards.

How do credit cards work?

If you’re successful in applying for a credit card, you’ll receive the card in the post. Separately you will receive a personal identification number (PIN) to go with the card. Once you have your card and PIN, you need to activate the card, often online, for it to be ready to use.

You’ll be able to use your credit card to make purchases before paying back the balance, or part of what you owe, each month. There is usually a minimum monthly payment you should make to avoid any fees, but if you pay your balance back in full every month you can avoid paying interest at all.

This means that if they’re used sensibly, credit cards can almost function like an interest free loan. However, it you don’t make your payments on time you could face charges as well as high interest rates. Using your credit card responsibly can provide big financial benefits.

Should I apply for a credit card?

If you’re thinking about getting a credit card, you should consider whether you’re in the best place to make an application. While it can differ between providers, they generally use the following criteria to decide whether they’ll accept your application:

  1. Your financial history: any County Court Judgements (CCJs) or bankruptcies in your history can make it less likely your credit application will be successful.
  2. Your earnings: some providers require you to be earning regularly in order to qualify – some even have a minimum amount you should be earning.
  3. Your credit score: lenders look at your credit history and report and use this information to assign you a credit score. As lenders each generate their own credit score based on their own requirements you could have different scores with different companies. Credit card providers use this score to determine whether you qualify for their credit card

When you apply for a credit card it leaves a record on your credit report, and the more applications you make – particularly rejected applications – the harder it could be to get credit in the future.

This is because too many applications could make lenders think you’re struggling with your finances or are an irresponsible borrower. As a result they may think you’re at risk of not being able to make your future repayments.

You can learn more with our guide on whether you’ll be accepted for a credit card.

Advantages of using a credit card

As long as you use them properly, credit cards can have a number of advantages over debit cards and cash payments. These include:

  • Spreading purchases out: with a credit card you’ll be able to spread out the cost of a large purchase, such as a home appliance, over several monthly payments. This can be useful for emergency situations where you might struggle to pay immediately for something you need
  • Buying now to pay later: it can also be a more convenient option to use a credit card, as it can let you buy a product or service but not pay for it until payday rolls around and you can make your monthly repayment
  • Having purchase protection: any purchases you do make for between £100 and £30,000 on a credit card are protected by Section 75 of the Consumer Credit Act. This means if the transaction goes wrong, for example if the selling company goes bust or if the purchase is faulty or goes missing, you can claim the cost back from your credit card provider. You’ll also be able to claim for a refund if your credit card is used fraudulently, as long as you weren’t negligent with it – read more with our guide to credit card security
  • Getting an interest free loan: some credit cards offer a 0% interest period that effectively lets you borrow for free, providing you make your monthly payments. Even if you pay the minimum amount required per month, you’ll still be borrowing interest free until this period ends. At this point it would be best to completely pay off your debt, otherwise you could be placed back on the provider’s standard rate – which can be quite high. You might also be placed back on the standard rate if you miss a payment or exceed your credit limit. While interest free credit cards can be a big benefit, they should still be used sensibly
  • Getting benefits and rewards: many credit cards also come with varying benefits and incentives that can be useful if you pick the right ones. For example if you’re a keen shopper you might find a cashback or store credit card to be ideal, while if you’re often flying from country to country you might prefer an airline credit card. Read more about how you could benefit with our guide to reward credit cards
  • Cutting down your debt: with a balance transfer credit card you’ll be able to transfer existing debts on to one credit account – usually with lowered or no interest. This means you reduce the amount of money you pay on interest, letting you pay off the debt quicker
  • Boosting your credit rating: if you have a poor or limited credit report, credit builder credit cards can offer a way to improve your financial situation and create better borrowing habits. As they’re aimed at people with a poor credit rating, they can often charge higher rates of interest, but as long as you make your repayments in full each month you won’t have to pay any interest. Consistently paying off your balance means you’ll be able to slowly build your credit report up as you show that you’re able to borrow money responsibly over a long period of time

Disadvantages of using a credit card

When you use a credit card you should be mindful of the following risks:

  • The possibility of debt: the main risk of taking out a credit card is that you could put yourself in  rising debt if you aren’t able to pay back what you borrow. Some credit cards can charge high rates of interest, sometimes over 20%, and this can build up quickly if you don’t pay the balance off
  • Your credit score: letting your credit card debt build up, or missing payments, can influence your credit rating. The lower your credit rating the harder it will be to apply for credit in the future.
  • Fees and charges: credit cards can also come with fees and charges if you don’t meet your repayments or you exceed your credit limit. You need to be careful with how you use them
  • Limited usage: you might be restricted in how and where you can use your credit card. For example, many will charge you for withdrawing cash or using the card abroad unless stated otherwise in the credit agreement

How can I use my credit card effectively?

To make sure you’re getting the best from your credit card, consider the following:

  1. Don’t miss a payment: missing payments can result in charges and loss of certain benefits, which makes it important to keep up with your balance – even if it means paying the minimum monthly amount
  2. Pay more than the minimum: however it’s usually better to pay off as much as you possibly can, ideally the full amount. This can help you keep control of your balance and avoid going into debt, and with interest free credit cards it can be as good as an interest-free loan
  3. Set up a direct debit: if you think you might not remember to make your payment each month, you could try setting up a direct debit for the minimum monthly amount to ensure you can at least meet that payment
  4. Take advantage of rewards: credit card rewards can be a great bonus of your credit agreement, but as they can sometimes cost extra you should take advantage when you can, otherwise you’re paying for a service you don’t use
  5. Get a card to match your needs: you should therefore consider what you’ll be using your credit card for before applying. There won’t be much point in paying extra for an airmiles credit card if you don’t fly a lot. And if you’re in a lot of debt it’s worth considering balance transfer cards more than store or supermarket cards
  6. Use it sensibly: you should check if your credit card charges for cash withdrawals or using overseas. If you think you’ll be doing either of these you might be better off looking for a credit card that offers these services for free
  7. Time your applications: applying for a credit card can leave a mark on your credit report, and too many of these are generally an indicator of poor finances. Timing your applications and using MoneySuperMarket’s credit card eligibility checker can help you make an application with the best chance of being accepted

Compare credit cards with MoneySuperMarket

Finding the right credit card is easier when you compare your options on MoneySuperMarket. All you need to do is tell us a little about yourself and your finances, including details about your employment, income, and what you’ll use the new card for.

Then you’ll be given a list of credit cards that match your needs, and you’ll even get to see which cards you’re most likely to be accepted for if you apply with our credit card eligibility checker. This way you can minimise the risk of applying for a card and help keep your credit rating healthier.

Once you’ve found the card you want, just click through to the provider to finalise your application. If your provider accepts your application, they’ll tell you what your credit limit and interest rate will be set at. As soon as it comes through the post you just need to activate it – then it will be ready to use.


MoneySuperMarket is a credit broker not a lender. You must be 18 or over and a UK resident.

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