Pros and cons of shopping with a credit card

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Credit cards can be a convenient way to not only pay for products and services, but also earn you rewards on your spending. Many cards also offer protection against theft and damage on pricey technology, like laptops and smartphones. Yet, as with any financial tool, there are pros and cons to consider when shopping with a credit card.

Before swiping or tapping your plastic, understand the potential risks and benefits of shopping with a credit card, including our tips for responsible credit card use.

Pros of shopping with a credit card

With major issuers accepting credit cards worldwide, shopping with a card gives you great purchase power, among other benefits.

• Convenience. A credit card can unlock access to goods and services in person, by phone and across the Internet, not to mention shopping worldwide.
• Rewards on your spending. The best rewards credit cards offer lucrative cash back, points or miles on each dollar you spend that you can redeem for statement credits, travel and other perks. Many cards offer higher rewards in rotating categories that include groceries, restaurants and even online spending.
• Build or rebuild credit. Credit cards are a good way to build credit quickly with responsible spending and on-time payments. This good financial behavior is reflected in your credit report, which future creditors and lenders rely on when deciding whether to approve you for cards, loans and more.
• Big-dollar purchases. If you don’t have the cash up front to pay for larger expenses, a credit card can help you buy that item and pay it off over time. With a 0 percent interest credit card, you can pay down that debt with no interest for 18 months or longer, saving you a pretty penny.
• Purchase protection. Credit cards are among the most secure ways to shop, with many cards offering zero-liability coverage and fraud protection for peace of mind if something goes wrong.
• Travel perks. Your card might also come with travel cancellation and interruption insurance, luggage insurance, an auto rental collision damage waiver and other under-the-radar perks that can ease your journeys both close to home and further afield.

Cons of shopping with a credit card

Despite the benefits, there are risks to consider when swiping or tapping your card.

• Potential to overspend. Credit cards can get you what you want fast, but that convenience can tempt overspending if you’re not careful. Before you buy, think about 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, which can add up if you’re not able to pay off your balance in full each month. And interest is compounded, which means you’re often paying interest on your interest. This cost of borrowing money can easily outweigh any perks or rewards you might earn — and can pull down your credit score if your budget can’t cover the charges.
• Fees and penalties. And it’s not just interest: 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 each purchase.
• Possible hit to your credit. Credit cards have the potential to pull you into debt and poor credit if not used responsibly. Among the credit card mistakes that can hurt your credit are charging more than you can comfortably repay and not paying your statement on time.

Shopping with store credit cards

You’ve likely heard the sales pitch while at the counter of your favorite retailer 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 that, unlike traditional credit cards, are limited to use at that store or its related brands. A store card can be worth it for cardholder incentives like welcome discounts, ongoing coupons and other perks.

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 your statement 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, whereby interest is 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 interest charges on your original balance retroactive to the time of your purchase.

Carefully read and understand the fine print of any store card or promotional offer before you sign up for these cards to avoid the surprise of heavy interest charges and a hit to your credit.

The bottom line

Credit cards are a convenient way to navigate gift buying, everyday shopping and services both in person and online. The right credit card can also earn you rewards on your spending and perks like protection against theft and damage.

Though without care, a credit card can tempt overspending, potentially resulting in accumulated interest that can lead to debt and a damaged credit score.

By understanding the benefits and drawbacks of these financial products, and staying mindful of how you use them, you can reap the rewards of a credit card and build a positive credit history, leading to better financial management and peace of mind.