Pros and cons of shopping with a credit card

Credit cards are a convenient way to pay for products and services and earn rewards on spending. Some cards also offer purchase protection that can help you if the item is stolen or damaged.

Yet, there are a few pros and cons you may want to consider when shopping with a credit card.

Pros of shopping with a credit card

With major issuers accepting credit cards around the globe, shopping with a credit card can give you easy access to credit, among other perks.

• Convenience. A credit card allows you to pay for goods and services, whether you’re shopping in person, by phone or online.
• Rewards on your spending. Rewards credit cards often offer lucrative cash back, points or miles on your spending that you can redeem for statement credits, travel and other perks. Certain cards offer higher rewards in rotating categories that can include groceries, restaurants and online shopping.
• Build or rebuild credit. Credit cards can build credit if you practice responsible spending and make on-time payments. Creditors and lenders use your credit report to decide whether or not to approve you for cards, loans and more based on good financial behavior.
• Big-dollar purchases. A credit card can help you finance a large purchase and pay it off over time if you don’t have the cash up front. With a 0 percent interest credit card, you can pay down that debt with no interest for 15 months or longer, saving you a pretty penny.
• Fraud protection. With many credit cards offering zero-liability coverage and fraud protection, these cards are among the most secure ways to shop.
• Travel perks. Your card might also come with travel perks such as trip cancellation and interruption insurance, luggage insurance, an auto rental collision damage waiver and other under-the-radar perks that can offer peace of mind.

Cons of shopping with a credit card

Despite the benefits, there are risks to consider when using your credit card.

• Potential to overspend. Credit cards can help you make purchases that you might not otherwise be able to afford, but that convenience can lead to overspending if you’re not careful. Before purchasing, consider whether you have the budget to pay off your balance or interest.
• High interest rates. Speaking of interest, the current average interest rate on a credit card is more than 20 percent, according to Bankrate. APR charges can add up if you don’t pay off your balance in full each month. And interest is compounded, meaning you’re paying interest on top of interest. The cost of borrowing money can easily outweigh any perks or rewards you might earn — and can negatively affect your credit score if your budget can’t take on the charges.
• Fees and penalties. If you miss a credit card payment, you may face late fees of $35 or more, as well as a higher interest rate as a penalty. If you use your card internationally, you may also pay foreign transaction fees of up to 3 percent on average for each purchase.
• Possible hit to your credit. If not used responsibly, credit cards have the potential to pull you into debt and poor credit. Common credit card mistakes that can hurt your credit include not paying your card bill on time and charging more than you can comfortably repay.

Shopping with store credit cards

You’ve likely heard the sales pitch at the checkout counter when the clerk asks if you’d like to save money by signing up for a store card. Store cards are cards co-branded with a retailer or online storefront. Unlike traditional credit cards, they’re limited to use at that store or related brands. A store card can be worth it for cardholder incentives like welcome discounts, ongoing coupons and other perks if you’re a store brand loyalist.

But these cards typically come with higher APRs than traditional credit cards — as high as 25 percent or more. To get the most value out of a store card, prioritize paying off the balance in full each month.

Also, watch for sign-up offers promising no interest on your purchase for a specified time. While approval can be easy, these offers are more often deferred-interest promotions, meaning interest is simply delayed through your promotional period. If you fall behind on payments or can’t pay off your full balance within the promotional period, you could end up paying all the interest charges on your original balance retroactively.

Carefully read and understand the fine print of any store card or promotional offer before you sign up. This way, you can avoid unexpected interest charges and a potential hit to your credit.

The bottom line

Credit cards offer a convenient means for navigating everyday shopping and services, both in person and online. Some cards also provide rewards for your spending and perks such as protection against theft and damage.

But if you’re not careful, overcharging a credit card can cause overspending. This can result in accumulated interest, leading to debt and a lower credit score.

Credit cards can effective if you keep in mind their advantages and disadvantages and remain mindful of how you use them.