22 Disadvantages & Advantages Of Credit Cards
There are a lot of benefits to having a credit card just as there are some disadvantages, that is why in this post we present the credit card disadvantages and advantages to help you understand what you stand to gain or lose in having one.
Owning a credit card can be very advantageous in most cases but like they say ”every good thing has its bad side”. So stay here while I carefully take you through some of the good and bad sides of a credit card.
In this post, we have compiled a total of twenty-two (22) advantages and disadvantages of credit cards and we hope that you find this resourceful.
Let’s first understand what a credit card is.
What is a Credit Card?
A credit card is a small plastic, or a metal card issued by a bank to customers to allow the holder to purchase goods or services on credit. The financial company allows you to make purchases by borrowing money up to a stipulated limit.
The bank which is usually the common entity that gives credit cards enables a customer to incur a debt, which is charged to the account, and the cardholder does not have to pay the outstanding balance.
Most credit cards are plastics, some are stainless steel, palladium, metal with gemstone-encrusted on it, and titanium
Credit cards typically allow you a line of credit that can be used to make purchases, cash advances, and balance transfers, and affords you the comfort of paying back the loan amount in the future although you will need to make at least the minimum payment every month by the due date on the balance.
There are two types of credit cards, consumer credit cards, and business credit cards.
A credit card is different from a charge card. A charge card usually requires the balance to be repaid in full each month or at the end of each statement cycle. Unlike credit cards which allow consumers to build a continuing balance of debt, for an interest.
A credit card also differs from a debit card, which can be used to withdraw cash and pay for purchases, it can be used as currency by the cardholder.
Advantages Of Credit Cards
- Having a credit card is far safer than carrying cash, also the chances of getting back stolen cash are very slim meanwhile when the card is missing or stolen, you can easily block your card to restrict transactions.
- Credit cards can be a financial backup if you don’t have enough cash to cover unexpected costs that may arise. Credit cards provide an emergency line of credit.
- Credit cards often have complementary giftings like travel insurance including complimentary flight offers, purchase protection, passes to some of the best airline lounges and even free checked bags and extended warranty insurance which can save you money and time
- You can use credit cards to make travel reservations and insurance. You will most times require your credit card to reserve your flight or book your hotel stay.
- Most travel credit cards come with different insurance and coverage options, including lost luggage coverage, travel accident insurance, car rental damage waiver, and trip cancelation.
- Credit cards take away the discomfort of carrying a large amount of cash around, they offer the flexibility of an unexpected purchase when there is not sufficient cash available.
- Credit cards offer zero liability for fraudulent charges when reported immediately. The Consumer is protected if fraudulent charges are reported promptly or in the case of stolen or lost cards.
- A credit card can greatly improve your credit score. Your credit card account details which include usage and payment history play a significant role in your credit score.
- Good credit card information will increase your chances of approval for other products such as car loans or a mortgage and a lot more.
- If you complete payment of your balance before the statement period ends, you are likely to be rewarded with interest-free days on future purchases for a set period.
- With a credit card, you can earn rewards each time you spend. For instance, you can earn rewards with an airline credit card for every dollar you spend on a purchase.
- If you’re unsatisfied with a product or service, you can ask for a chargeback through your credit card company if you have a disagreement with a merchant, either in-store or online.
Disadvantages Of Credit Card
- Credit cards can attract high-interest rates. If you carry a balance from month to month, you’ll keep paying interest charges for those months. Cash advance interest rates can be as high as 22% APR which will make you end up paying a thousand more than your initial interest payment.
- Credit score can be affected by credit damage, missed credit card repayments, and ongoing debts are recorded are all recorded on your credit file and can impact your chances of getting a loan.
- Credit card fraud is on the rise, there is a range of fraud schemes that target credit cards. Scammers use skimming devices, and techniques to trick and steal your credit card information and as a result carter away with your money. Although you can be compensated for illegal transactions on your account sometimes, dealing with it can be time-consuming and stressful.
- It is expensive to use your credit card to get cash out or make other “cash equivalent” transactions and using a credit card for a cash withdrawal will attract a cash advance fee of about 3% of the total transaction amount with an immediate charge of an interest rate of 19–22%.
- Most credit cards attract fees you pay annually. These fees range from $25 per year to as much as $1,200 depending on the card that you choose. Generally, the amount of the fee is usually influenced by the number of perks you want. The higher the number of perks the higher the annual fee.
- When paying with credit cards businesses often added surcharges to each payment. For Amex cards, it could be about 3% of the total transaction cost, for Mastercard and Visa products, it is usually 0.5–2% of the total transaction cost. That is one of the prices you will have to pay for the convenience of paying with a card on the go.
- Credit cards have several charges which include the charges you will experience when you miss a payment or spend past your credit limit.
- You get charged a fee for oversea transactions, depending on the location you are transacting with, different fees apply for different locations.
- Other fees include balance transfer fees and even rewards program fees, some programs attract fees. Interest charges are also applied If you carry a balance or don’t have access to interest-free days.
- With credit cards overspending is hardly minimized. Most people get easily carried away with their credit cards which will result in making them incur debt that is beyond their pay
Types Of Credit Cards
- Zero percent intro APR credit cards
- Business credit cards
- Rewards credit cards
- Cash back credit cards
- Travel credit cards
- Student credit cards
- Secured credit cards
- Store credit cards
- Co-branded credit cards
- Balance transfer credit cards
If you must use a credit card, you should know the credit card disadvantages and advantages, this way you will understand how to effectively make the best use of it.
We might not have in this post, given you all the credit card disadvantages and advantages, but we hope that the ones we have mentioned will be helpful in your journey of credit card usage.