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At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Terms apply to the offers listed on this page. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Bankrate logo The Bankrate promise
At Bankrate, we have a mission to demystify the credit cards industry — regardless or where you are in your journey — and make it one you can navigate with confidence. Our team is full of a diverse range of experts from credit card pros to data analysts and, most importantly, people who shop for credit cards just like you. With this combination of expertise and perspectives, we keep close tabs on the credit card industry year-round to: Meet you wherever you are in your credit card journey to guide your information search and help you understand your options. Consistently provide up-to-date, reliable market information so you're well-equipped to make confident decisions. Reduce industry jargon so you get the clearest form of information possible, so you can make the right decision for you. At Bankrate, we focus on the points consumers care about most: rewards, welcome offers and bonuses, APR, and overall customer experience. Any issuers discussed on our site are vetted based on the value they provide to consumers at each of these levels. At each step of the way, we fact-check ourselves to prioritize accuracy so we can continue to be here for your every next. Bankrate logo Editorial integrity
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There are many , 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 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 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 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 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 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 , 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 on unauthorized charges if you report the charges within 30 days. However, thanks to the , 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 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 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 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 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 , 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 , 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, 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 or becoming an . Applying for too many credit cards can hurt your credit
Applying for 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 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 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, 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. Fees
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 may accompany your credit card. You don’t want to be hit with any surprises later on. Rewards
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. SHARE: Cathleen's stories on design, travel and business have appeared in dozens of publications including the Washington Post, Town & Country, Wall Street Journal, Marie Claire, Fodor’s Travel, Departures and The Writer. Related Articles