Credit cards can be an excellent budgeting tool, but as with many financial products there are pros and cons. In this guide we’ll lay out some of the advantages and disadvantages of getting a credit card. That way, you can make an informed decision on whether it’s the right option for you.
There are many advantages to using a credit card. Some of the benefits include:
Convenience. Using a credit card lets you buy something today but put off the real cost until payday rolls around – so you don’t have to wait
Spread out the costs. If you need to make a big purchase, a credit card lets you pay over several monthly instalments. This can help with budgeting and it won’t leave a huge hole in your finances
Boost your credit. If you use a credit card responsibly, lenders will notice – and it can help to improve your credit score. If you have a low credit rating, you can get a credit builder credit card designed to help you build up your score
Purchase protection. Sometimes there could be a problem with your purchase – it might get lost or damaged, for example, or the company could even go bust. With credit cards, you have buyer protection for any purchases made on the card between £100 and £30,000. It means you can claim your money back from the card provider if there’s an issue with your goods or services
Cashback and rewards. Many credit card providers offer a range of rewards to customers. You could be getting air miles or similar shopper loyalty points each time you use your card, or even cashback on purchases
Slim down your debts. If you’re already paying off debts you could use a balance transfer credit card to reduce your interest payments, helping you to clear your debt quicker
If your credit card is used fraudulently you can usually claim your money back – just make sure you do your best to keep it secure.
Provided you alert your card provider immediately to the fraud it should be able to freeze the account and card – and you won’t be liable for any of the spending or interest on the debt. Read more in our guide to credit card security.
Getting a credit card can come with pitfalls and drawbacks. Some of the risks you should be aware of include:
Getting trapped in debt. If you can’t pay back what you borrow, your debts can pile up quickly. If you have bad credit, you could get hit with high interest rates – and once you’re in spiralling debt, it can be difficult to pay it all off
Damaging your credit. Your credit score can go down as well as up. Miss a payment on your card or allow debt to stack up and this can damage your credit rating. This can make it harder to get credit in the future
Extra fees. The interest rate isn’t the only number you need to look out for when choosing a credit card – there may be extra charges too. Your provider could impose fees if you miss a payment or go over your credit limit, which is bad news if you’re already in the red. Some credit cards might have a monthly or annual fee, and many balance transfer cards charge a fee to switch a balance. Check the APR (annual percentage rate) to get an idea of the overall cost of a card
Limited use. Credit card providers might charge you extra for things that are free with a debit card, such as withdrawing cash from an ATM or buying things overseas
Different types of credit card will suit different people – depending on whether they want to pay off existing debt quickly, make a large one-off purchase or earn cashback on weekly spending. Here are some helpful tips to make sure you’re getting the best from your card:
Pick the right card. There are several types of credit card to choose from, so it’s good to consider your needs before you pick one. If you want to spread out a big expense, a purchase card could be right for you. Looking to pay less on your existing debts? Try a balance transfer card. Our guide to finding the right card could help with your decision
Balance the books. In general, you should never charge anything to your credit card that you can’t afford to pay back later. Spending within your means keeps your credit score healthy – and it’ll stop you falling into debt
Pay over the minimum. It’s crucial to meet your minimum monthly repayment – but ideally try to pay back more. If you can afford to pay off more than the minimum, it's a good move because you’ll pay less in interest. Plus if you can clear the balance each month you shouldn’t pay any interest and you won’t have to worry about falling into debt
Get a direct debit. Setting up a direct debit means you don’t have to remember to make your monthly payments. Set it to the minimum monthly amount – but remember, paying off more is usually better
Stay alert. Most providers will offer you some kind of alert system, by text or online, so you’ll know when a payment is due or if you’re approaching your credit limit
Pick up some perks. If you’re using a rewards card, make sure you take full advantage of all the perks. These cards tend to come with an annual fee, so you could be losing money if you don’t use it enough. For example, you could use your cashback credit card for all your normal daily purchases - then pay off the balance in full each month – but reap the rewards
Time your applications. Applying for a credit card can leave a mark on your credit report - and too many applications in a short space of time is generally an indicator of poor finances. Timing your applications and using MoneySuperMarket’s credit card eligibility checker - so you can search for card deals without harming your credit rating - can boost your chance of being accepted
When you’re choosing a credit card, it’s important to consider what you’d like to do with your new card.
Maybe you have some big expenses coming up, and you want to break up the cost into more manageable chunks. You might want to pay down your existing debts. Or maybe you’d like to earn cashback or rewards.
With MoneySuperMarket, it’s easy to find the best credit card for you. Once you’ve started your search, here are a few things to look out for:
Types of card: Do I want a credit builder card to improve my credit, a purchase card to help budget for a big expense, a balance transfer card to consolidate all my debts, or a rewards card to take advantage of great offers?
Fee-free overseas: Think about whether you’re likely to need to use the card abroad. There are some cards that allow you to spend money abroad without extra charges?
Credit limits: Consider what is a sensible credit limit for you. A high credit limit can provide added flexibility, but a lower limit could reduce the risk of getting into debt
Extra charges: There could be added fees on certain cards, particularly those offering perks and cashback. Weigh up if the fee is worth paying for the benefit
0% period: There are many cards offering 0% interest for different periods – sometimes up to two years or longer. If this is important to you remember to compare different deals and consider any add-on fees
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 the 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. The lender will tell you your credit limit and the interest rate. 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 not a lender. You must be 18 or over and a UK resident.