Weighing the Pros and Cons of Credit Cards

What comes to mind when you think of credit cards? You might be filled with dread about the years of bad spending habits on your credit score, or maybe you have shied away from using them. You might already have credit, but you're unsure if a credit card is right for you. No matter where you find yourself in your financial journey, credit is a key factor in what you can and can't purchase. 

Why Is It Important to Weigh the Pros and Cons Before Applying for a Credit Card?

Credit is something that can help your finances excel or crumble. It is a way for lenders to know how dependable you are when it comes to borrowing money, and your credit score reveals how consistently you have been able to pay back debts on time and in full. Since credit plays a key role in your financial health, knowing whether a credit card is a wise choice is crucial. Let's start off with what to be cautious of when using a credit card.

Cons for Using a Credit Card

Impulsive Spending

One of the most significant risks associated with a credit card is the user. This is a common reason people hesitate to get a credit card: they know their greatest obstacle is their shopping habits. If overspending is a genuine struggle for you, opening a line of credit might not be the best decision for your financial health. There are benefits to using credit cards, but if you are risking your financial security because of a lack of self-control, then the risks outweigh the benefits for you.

Tracking Your Payments

When you pay with cash, you're paying for a product in full and don't have to worry about the transaction again. However, credit cards have extra steps since you are borrowing money. Keeping track of your payments until your debt is paid is essential. Instead of waiting for the minimum payment, try to pay off the loan. If these steps are difficult for you and you keep missing payments, this can negatively impact your credit score, and you can accumulate high fees for each one. You'll need to consider whether managing these payments and staying on top of your credit is the right fit for you before committing to opening a credit card.

While some financial experts suggest forgoing credit cards entirely, having a credit card comes down to an individual's case-by-case basis. If the things we've mentioned are weak spots for you, you might want to avoid using them for your general purchases. However, there are some positive ways credit cards can help you grow in your financial journey.

Pros for Using a Credit Card

Builds Credibility

Since you need credit to make significant financial decisions like buying a house, you need to have the chance to prove your credibility beforehand. Credit cards open the doors for you to practice making payments for smaller items, so when a lender has a significant asset that comes along, they know you can handle the responsibility. For example, you could be a young adult with no substantial debts and looking to rent an apartment. What do you do if you don't have any credit? Paying off a credit card on time and in full allows you to show that you are a dependable borrower, even if you haven't made any other financial purchases.

Keeps Money Safe

Since you are using a line of credit instead of direct cash, credit cards can be a safe barrier between you and someone trying to steal your money. Let's say you purchase a gift on Etsy with your debit card, and someone hacks your account and steals $1,000. Since it's tied to your checking account, the fraudster had the opportunity to steal from the direct source of your money. While you can try to recover some of that money, you may not receive it all back. Fraud can still happen with a credit card, but they can provide more protection than debit cards.

Earns Benefits

Some credit card companies offer unique deals for their cards, such as a certain percentage of cash back for each purchase. Major corporations like Amazon or Delta Airlines also offer deals for their products, flights, and travel that you can earn as you spend.

How Can Credit Cards Help Build Your Credit Score?

You can build your credit in different ways, especially if you have loans to pay off regularly, like an installment loan. Installment loans are ones you pay off monthly, and they could be auto loans, student loans, or personal loans. You can build credit by paying these loans on time and when they are due.

How do you build credit if you don't have any substantial debt? This is why having a credit card can be an ideal way to show you're a trustworthy borrower. You can have a smaller line of credit, so you don't have to worry about a large sum of debt looming over you. Even if you have a smaller line of credit, like $5,000, you can practice managing your payments and reveal your financial responsibility by developing your credit score.

How Do Credit Cards Provide Convenience in Everyday Purchases and Travel?

Credit cards can be useful resources, depending on your lifestyle and shopping preferences. If you find yourself in any of the following situations, you might consider opening a credit card.

Online Shopping

If you don't have time to drive to your local grocery store or go around town looking for a new pair of shoes, cash isn't an option for your transactions. This is where a credit card can help you shop with ease by completing them online and saving your information if it's a store you shop at regularly. Instead of using only your debit card on all these transactions, a credit card could protect your money by using a line of credit instead of leaving your checking account vulnerable to scams. Credit cards can be helpful for:

• Grocery pick-ups
• Mobile orders at restaurants
• Deliveries from online vendors like Amazon
• Pre-ordering movie or concert tickets
• Items that aren't available in-store and only online, such as Target or Walmart

Traveling

Whether you are going to a business conference or getting fresh air at a national park, a credit card can make your travel experience more manageable and safe. Cash is always an option, but it can be a hassle if you're in a hurry or packing lightly. Fraud can also be easier to catch with a credit card compared to a debit card if someone tries to scam you.

What Fees Are Typically Associated with Credit Cards?

Fees are standard with credit cards since you borrow money from a lender. Here are some costs to watch out for when deciding which credit card is right for you.

1. International Travel

While credit cards can provide security when traveling internationally, some fees can accumulate depending on your financial institution or credit card company. These fees can vary, but they could be up to 3% of your purchase. It is beneficial to know that not all credit cards have these fees, so make sure you consider that if you often travel internationally.

2. Missed Payments

If you accidentally miss or forget to make a payment, your card could charge you a late fee. Some cards may not charge this fee, but you should stay diligent in managing your payments to protect your credit score.

3. Balance Transfers

Whenever you decide to change your credit card to a different financial institution or credit card company, you could receive a charge of 3-5% of the amount you have.

4. Going Over Your Limit

Let's say you have a credit limit of $3,000. To protect yourself from being charged, you want to make sure you never exceed that limit in your spending.

5. Annual Fee

An annual fee is a charge associated with specific credit cards that usually have unique benefits. The fee allows the lender to earn money back from what they've lost to provide the benefits to you.