Credit Cards are like a small bank or a bank wallet that is always in your pocket from where you can transfer a digital money to pay someone. It is an emergency wallet if you don’t have cash in your pocket.
Before discussing the pros and cons of credit cards, few things should be clear. There are several ways and reasons to use a credit card:
- Some use a credit card for convenience,
- Some use it for building a credit line or score,
- Some use it for 0% financing and getting rewards.
But there are some negative reasons for using credit cards like overspend with a credit card, the expensive nature of credit cards, debt generated, and sometimes missed payments that can hurt your credit scores. We spend billions of dollars in credit card debt each year, for example, if anytime you missed your payment then, it will be marked on your credit report for seven years.
So you need to be aware of the advantages and disadvantages of credit cards. Effective use of credit cards always helps you. You don’t even need to make purchases with a credit card to earn or get the benefit.
Pros and Cons of Credit Cards
Top 17 Pros of Credit Cards
- Credit Building: Credit cards companies report the account information to the major credit bureaus on a monthly basis. This process helps someone with a bad credit score to build a solid credit history or rebuild fairly quickly. You don’t even need to use your credit card to earn or get the benefit. Just you need to open an account with good standing, and this positive information will fill your credit reports.
- Convenience: With credit cards you don’t need or require to always carry cash, especially when you want to make big purchases. Credit cards are easier to conceal and carry, but it’s also a lot easier to keep tabs on a card than the exact amount of cash you have with you. When your credit card is lost or stolen, you aren’t liable for any unauthorized charges and your money will not be taken by some person who stole your credit card. You can’t say the same for cash.
- Rewards: When credit card companies reward you in the form of cashback, airline miles, hotel points, or gas rebates. Some credit card companies provide rewards in the form of subsidizing the cost of purchases and they also provide certain unique services or offers. While choosing the rewards credit card then definitely you will be joining some group for which membership has its perks. For example, some cards are special to get discounts and few cards exclusive for some particular shows, some cards are for ball games, and concerts; some cards are made to get the VIP treatment in airports and hotels; few are for concierge services; special gifts cards are also and much more. The list of rewards cards is endlessness.
- Grace Period: Credit card companies give you at least 21 days grace period from the time you receive your credit card bill each month to pay it. This means that if you pay your bill in full every month, and you have a total of up to 51 days (21-day grace period + 30 days in a billing cycle).
- Pay Over Time: Credit card companies allow you to buy now and pay later, and also you can even repay the amount in the same month or you can partially for the years. Also, many credit card companies offer 0% introductory APRs. Using such a card for a big purchase can save thousands of dollars, as soon as you pay off your balance before the regular interest rates take effect.
- Theft Protection: Credit cards have $0 liability guarantees, meaning you won’t lose any money if your card gets lost or stolen.
- Online Shopping: While shopping online you may be using other payment methods to buy things, including debit cards, prepaid cards, gift cards, and PayPal. But the best online shopping payment method is credit cards. Credit cards are aare suitable option and also it is very beneficial. Mostly all merchants accept credit cards virtually, this method will give you the best fraud protection and the most generous rewards also. This option is best for buyers and sellers.
- Hotel & Rental Car Reservations: With a credit card you can rent a car or hotel room. But credit cards make it easier and less expensive for you. It’s always beneficial to have your credit card and to have a credit line that will help you to tie up the actual money in your bank account. Also if you do booking with a credit card this will allow you to earn rewards and you can also take advantage of any travel insurance your card offers.
- Balance Transfers: If you choose a balance transfer credit card then this will help you drastically and also reduce the cost of what you owe and get out of debt much sooner. It doesn’t have to be credit card debt, either. Some credit card companies let you transfer balances from various types of loans.
- Travel Insurance: Some Credit card companies provide insurance against canceled trips, missed connections, lost luggage, and even death. The coverage amount depends on the card you have, while choosing the travel insurance card you make sure about the details and always look or recheck the details before traveling.
- Cheap Currency Conversion: Nowadays Credit card companies offer currency conversion cards and they convert automatically when you make any type of international purchase and swipe your card internationally. These companies provide some of the best exchange rates as compared with the market possible rates. Their rate is cheaper than the market rates. If you choose a Visa or Mastercard with no foreign transaction fees option when you are traveling abroad, then you can save up to 8% as compared with the other popular options for exchanging hard currency. One thing you need to take care of and be clear about is dynamic currency conversion. You need to avoid dynamic currency conversion.
- Improving Financial Literacy: Credit cards are the best and good option to teach your kids about financial literacy. If you have used the credit card correctly then you can teach your kids correctly because credit cards are an excellent tool for teaching kids to not spend beyond their boundaries, and you can give them temporarily to see their ability to do so.
- Expense Tracking: Credit cards also help to track their spending over time. This is the easiest way to track expenditure because every month’s statement will be generated and you need to pay the amount. If you forget to pay or are not able to pay the interest will be charged. With this, you can pay dividends and you can budget your household expenses and track the cash flow and manage the money, and much more things you can do with credit cards.
- Small Business Perks: Business credit cards offer a wide number of helpful features to businesses and these features are tailored like this specifically to meet the needs of small business owners. Credit card companies offer rewards like when you purchase office supplies and telecommunication services. You get few robust expense tracking tools, and also can give employees cards with customizable limits and rewards if the employee’s cards you can keep with you.
- Car Rental Insurance: Few Credit card companies provide automatically supplemental rental car insurance, which covers all the damage or theft related to the rental car. Now you don’t need to buy the insurance for the rental car. If you do buy it, then coverage of your card will be nullified.
- Extended Warranties: Some People waste their money on buying extended warranties, without knowing that credit card companies provide that extended warranties as a perk free of cost. This is yet another reason why consumers should avoid buying extended warranties. This is a very bad deal for consumers who buy an extended warranty.
- The CARD Act: The Credit CARD Act of 2009 made using a credit card a whole lot safer. It’s the reason you no longer need to worry about excessive fees. And it’s why your balances won’t suddenly become more expensive without cause. The act has been made for protecting card issuers who face serious problems which is also known as consumer protection cards.
Top 10 Cons of Credit Cards
Overspending and Debt
When we make or do purchases with a credit card, there may be a chance you spend more than we would have but with cash this is not possible. when your payments aren’t tangible, they don’t feel how much to spend. And this is especially when we don’t know when the bill will come and how to deal with it. Many people think and also make the mistake of viewing or thinking of their credit cards as extra forms of income, which leads and engages them to shop based on their desires rather than necessities. While Doing this will lead to facing the consequences, now the credit card will become a burden rather than an advantage. If you are habitual of overspending with a credit card will leave you saddled with some very expensive debt. And like this will be not easy to pay your monthly payments, putting you at risk for delinquency, collections, or even a lawsuit.
- High Interest Rates: Credit card companies charge high APRs as compared to most other interest rates you will come up with. For example, the average APR charged for the new credit card offer is 19%and for the odd fixed-rate mortgage is 4.5%. That’s why experts say you should pay credit card balances in full as soon as possible.
- Fees: Credit card companies charge an average annual fee of about $16, which isn’t so bad. It can be worth fully paying an annual fee when you get better rewards in return. But few other fees should be avoided and it’s very expensive like advance cash fees, overdraft fees, and foreign transaction fees.
- Fine Print: Credit card companies’ applications and their disclosures are not so clear and it’s difficult to read. But you need to check the reviews to avoid surprises such as increased interest rates or unexpected fees.
- Vague Approval Requirements: All credit card companies have their ays for the approval of the credit card. Some Credit card companies will tell you that approval is based on your credit history, income, and debt. Some customers are aware of the level of credit score like Excellent, Good, Fair, Limited, or Bad and that’s required. But some issuers give you the opportunity to check for pre-approval before you apply. But few other companies don’t show and provide any information about approval and you are blindfolded while applying for the approval and also don’t have any specific way for the approvals.
- Fraud: If You have chosen an assured $0 liability for unauthorized transactions made with your account. But companies charge some disputing charges that can be a hassle. Sometimes Fraud can cause temporary damage to your credit report if it causes you to miss payments. So it is important to protect your personal information and check your credit card statements for errors each month and if you find any error then immediately report to the credit card company.
- Deferred Interest Financing: It’s become common practice for retailers to advertise 0% introductory interest rates for extended periods of time, with a catch called deferred interest. If the customer is not able to bring your balance to zero by the end of the 0% intro period, then you will be late with a monthly bill payment along the way, and the 0% rate offer will also go away from you. The interest rate will only be applied retroactively on the original purchase amount at a high rate. the 0% rate never happened. So you’re thinking that you have saved a lot of money to pay. This means you need to be very careful with retailer financing offers.
- Toxic When Misused: Credit cards are the best tools for people who want to build a credit line. They are having a fair and easy process to get and you are free to use because every month reports of the account information have been given to the major credit bureaus. But monthly credit-bureau reporting is like a fork in the medium of the road. It is your opportunity to either build your credit score or you can ruin it, depending on how responsibly you use your card. If the information is negative like missed payments and high credit utilization, then your credit score will suffer. The credit score value will become low if you will not receive a good interest charge. Past-due balances can also create problems for you and lead to collections accounts and even lawsuits.
- Short-Term Credit Hit: Whenever you open a new credit card account, your credit standing will suffer, it totally depends on you how responsible you use your card. The credit hit suffered till the last few months. It is important not to open a credit card right before you get the best credit score possible, such as if you are applying for a loan.
- No Business CARD Act: Unlike consumer credit cards, business credit cards lack the protection of the CARD Act. anytime credit and companies charge a high interest rate on business card balances whenever they want. But, some issuers have proactively extended their business card policies according to the CARD Act.
What are the requirements must have to become a credit cards owner
After learning the pros and cons, you must have understood where and when credit cards are so beneficial or do not. Now, the time to acquire some knowledge is when you can apply for this finance card.
Here are some official requirements, if these match with you then you will get this card within a few days:
- If you can regularly pay maintenance fees of your card
- If you are at least above 18 years of age.
- If you are an independent learner.
- Always maintain your credit card value with a lot of savings as well as spending, it means regular flow transactions.
- If you can afford annual fees or interest charges.
- Must have better goodwill