There is no arguing the convenience of a credit card. We have all felt the pressure of shuffling through a wad of cash for the right bill, and a pocket full of jingling coins is vexing and cumbersome.

Cash is simply a chore to carry around, which is why the invention of the credit card was such a game-changer. This slim piece of plastic offers incredible purchasing power with the simple convenience of a single card. However, there’s a certain level of discipline necessary when it comes to using credit cards in order for the benefits to outweigh the drawbacks.

Before you apply for a new credit card, this is what you need to know about the pros and cons of credit cards, and how they work.

What is a credit card?

There are many differences between a credit card and debit card, including how much you can spend and what it will cost you. A credit card is similar to a loan because you pay back those funds at a later time. A debit card, on the other hand, immediately draws from your checking account, so funds are paid without any delay.

A credit card allows you to make electronic payments for your purchases, but that doesn’t mean it gives you free money. While payment is not due right away, you’re still obligated to pay at least the minimum balance due. If you don’t pay your balance in-full within the grace period, you’re charged interest – thus making your purchase more expensive.

It usually takes a credit card company up to 30 days to bill you for your monthly purchases, so paying by credit card can be especially convenient when you need a little more time to come up with the cash to pay for something.

Pros and cons of a credit card

Credit cards at first glance can be a bit overwhelming. But building credit, earning rewards and benefiting from welcome bonuses are just a few of the reasons many consumers prefer credit cards over cash or debit.

On the surface, consumers new to credit may be awestruck by the opportunity to “buy now and pay later,” but credit cards are only a good addition to your wallet when used responsibly. Using a credit card can definitely make it easier to fund a large purchase or an unexpected emergency, but knowing the pros and cons of credit is important to maximize your return while minimizing the potential risks.

Here’s our list of pros and cons worth keeping in mind when it comes to using credit cards:

Pros of using credit cards

Credit cards are a great way to build credit

Credit cards are one of the most effective credit-building tools out there. When you take on a credit card, your credit card issuer reports your account information to the major credit bureaus on a monthly basis. If you use your card responsibly by paying your bill on time and in full, this is considered positive information.

However, negative information, such as frequent late payments or high credit utilization, is reported to the credit bureaus as well. Negative information can have a drastic effect on your credit score if it gets out of control. Your credit history is essentially a report card lenders rely on for insight into what kind of borrower you are.

You can keep your account in good standing by paying your monthly bill on time and in full, limiting how many credit cards you take out at once and keeping your balances low.

Credit cards are more secure than debit cards

Most credit card companies offer zero-liability fraud protection on unauthorized charges if you report the charges within 30 days. However, thanks to the Fair Credit Billing Act, your liability is limited to $50. If your credit card is stolen or lost, your credit card company can place a hold on your card to avoid fraudulent charges. Debit cards offer fraud protection, but you are required to report your lost or stolen credit card within two business days to avoid your liability going up from $50 to $500.

Credit cards simply have an extra layer of protection when it comes to fraud protection. Oftentimes, credit card companies will monitor suspicious activity and they will notify you if something seems out of the ordinary on your account. You simply don’t see this type of protection when it comes to debit cards and definitely not when it comes to using cash.

Rewards and bonus cardholder benefits

Most credit cards allow you to earn rewards in the form of cash back, points or miles. Additionally, some credit cards offer welcome bonuses that provide a lump sum of points, miles or cash back simply for meeting a certain spending requirement within a predetermined time frame.

It is important to apply for a rewards card that will benefit your type of spending as it is. If you are someone who spends in an array of areas each month, you will probably benefit from a card that has rotating categories. If your spending is harder to pinpoint to one category, you may benefit more from a cash back card with a fixed rate. It is much easier to maximize your reward when you get a card with a rewards structure that matches your general spending habits.

Cons of using credit cards

High interest rates and fees

With the average credit card interest rate nearing 17 percent, the price to carry a credit card balance from month-to-month is skyrocketing. Many credit cards not only come with high APRs (the annual percentage rate), but late fees, service fees, foreign transaction fees, balance transfer fees and annual fees. Carrying a balance on your credit card is one way to grow your balance to a point where you can’t manage it anymore.

The best way to avoid interest is by paying off your balance in full every month. If that is simply not possible, make sure to pay at least the minimum payment on time to avoid damaging your credit score.

Potential to overspend and fall into debt

When you open a credit card and see your credit limit for the first time, it is so tempting to go on a shopping spree. However, that may be the worst possible thing you can do with your new credit card. While credit cards are a great safety net and even better everyday cards when it comes to earning rewards, treat your card like you would the cash in your pocket. If you swipe your credit card and don’t have the funds to immediately pay off the balance, is that purchase worth it? Probably not.

In order to avoid falling into unnecessary debt, aim to establish a budget for the month and periodically check your statement to make sure you are following your own guidelines. This will make paying your bill at the end of the month so much easier because you are already expecting it to be within a certain range.

Vague or strict approval requirements

Credit cards typically base approval off of your credit history and income. When you initially look at a credit card’s approval requirements, you may see the minimum level of credit that’s required laid out as “good to excellent” or “fair to good”. While this is helpful to grasp what you may qualify for, applying for a new credit card is kind of like playing a game with a blindfold on.

However, thanks to the Fair Credit Reporting Act, lenders are required to tell you exactly why they rejected your application by sending you a letter in the mail. If your credit score is too low or you have too many negative marks on your credit report, you may take a step back from applying for a unsecured credit card, and consider a secured credit card or becoming an authorized user.

Applying for too many credit cards can hurt your credit

Applying for multiple credit cards at once can do more harm than good. Several factors go into calculating your credit score: payment history, amounts owed, length of history, new credit and types of credit used. While having a handful of credit cards is not a bad thing as long as you keep your credit utilization under 30 percent, there’s a limit to how many cards you should open.

Each time you request a new line of credit, lenders hit you with a hard inquiry in order to check your creditworthiness. When you apply for more than one card, each application will add a new hard inquiry to your credit report. Hard inquiries can ding your credit score, but applying for more than one credit card at once ultimately raises red flags to lenders.

How do I choose a credit card?

Before you sign up for a new credit card, you should give careful consideration to the terms of your card, including the following:

Card type

Different credit cards are processed using different payment networks, such as Visa, Mastercard and Discover. Some credit card types, like American Express, are not accepted as widely as Visa or MasterCard, so consider how much accessibility you will need for your card.

Interest rate

The credit card company will charge you a percentage of your balance until your total debts are repaid. This can vary significantly based on the card issuer and your credit history, so be sure to shop around for the best low-interest credit card.


There are many credit card fees that you can be charged, including annual fees, late payment fees, finance charges, over-the-limit fees and balance transfer fees. Carefully review your cardholder agreement to see what hidden fees may accompany your credit card. You don’t want to be hit with any surprises later on.


Rewards cards are specialized credit cards that offer special rewards based on how much you spend. You can accumulate points that can be used toward a number of extras, like airline miles and travel upgrades. In order to maximize your rewards, try to find a card with a rewards structure that matches your spending habits. For example, if you are an avid traveler, you may want to find a credit card that earns points redeemable for travel.

The bottom line

With responsible use, a credit card can be the extra lifeline you need when money is short or when you want to be rewarded for the things you buy the most. A credit card can also be very rewarding, giving you all kinds of luxurious upgrades and bonuses that are fun to use. However, nothing with a credit card comes free, so it’s important that you never spend more than you can repay at any given moment.