Advantages and disadvantages of credit cards
Credit cards are a great way to spread the cost of big purchases or even get useful perks – but there are risks. Read our guide to find out if 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 can I use a credit card for?
Credit cards can be a useful money management tool that you can use for:
Paying for goods and services
Making contactless payments
Building up your credit score if you remember to keep up with repayments
The important thing to remember when using a credit card, or any line of credit, is that you’re basically promising your card provider that you will repay the money you owe at a future date, usually with interest on top.
More and more consumers are turning to credit cards for their "staple" purchases, with UK credit card spending on these goods 14%[1] higher in 2023 compared to 2021, according to ONS data.
What are the benefits of a credit card?
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, as long as you ensure you make your repayments, it won’t leave a huge hole in your finances
Build 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. That means you can claim your money back from the card provider if there’s an issue with your goods or services
Go interest-free: Plenty of credit cards offer a 0% interest period. So you can borrow for free - with no interest charged, so long as you make your minimum monthly repayments
Cashback and rewards: Many credit card providers offer a range of rewards to customers. You could be getting air miles or 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
What are the disadvantages of credit cards?
As with any line of credit, 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 a bad credit history, 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
Should I get a credit card or a debit card?
Although credit card and debit cards look similar, they work differently. With a credit card, you’re borrowing money from the credit card provider. With a debit card, you’re spending money directly from your current account. Both cards can help you with money management if you use them wisely. Our guide on credit cards vs debit cards explains the differences between them in depth.
What to consider before getting a credit card
When you’re thinking about getting a new credit card, it’s important to think about what you’d like to do with it. When you’re ready to start 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 rating, 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 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
What is the best way to use my credit card?
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:
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
Is a credit card safe?
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.
Is a credit card right for me?
A credit card could be a good option for you as long as you’ll be able to keep up with repayments. If you can pay off your credit card bill in full every month then it can boost your credit score, too.
If you’re looking to step up your credit rating, then a credit card can be help you achieve your aims.
You should avoid getting a credit card, if you don’t think you’ll be able to keep up with your repayments. Missing credit card repayments runs the risk of damaging your credit score and making it harder to borrow.
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.
