Pros and Cons of Credit Cards

Credit cards have both pros and cons, though with responsible use, the benefits far outweigh the downsides. The pros of credit cards range from convenience and credit building to 0% financing, rewards and cheap currency conversion. The cons of credit cards include the potential to overspend easily, which leads to expensive debt if you don’t pay in full, as well as credit score damage if you miss payments.

To help you make the most of the positive features while steering clear of the pitfalls, WalletHub put together a list of the biggest pros and cons of credit cards.

Biggest Pros and Cons of Credit Cards

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Pros of Credit Cards

Advantages of credit cards include the chance to build credit, convenience, money-saving rewards, low-interest promotions and fraud protections. There’s also a host of potential supplemental benefits, such as travel insurance, purchase protection and extended warranties on purchases.

Credit Building

Credit card companies relay account information to the major credit bureaus on a monthly basis. If you use your card responsibly, the positive information reported to the credit bureaus will allow you to build or rebuild a solid credit history.

You also don’t need to use your credit card to benefit. As long as you have an open account that is in good standing, positive information will appear on your credit reports every month.

Convenience

A credit card is easier to conceal and carry than cash, and it’s also a lot easier to keep tabs on a card than the exact amount of cash you have with you. Plus, with a credit card, you don’t need to worry about having a lot of cash on you for big-ticket purchases.

In the unfortunate event that your credit card is lost or stolen, you aren’t liable for any unauthorized charges and therefore won’t lose any money. You can’t say the same for cash.

Rewards

Many credit cards provide rewards in the form of cash back, miles, points or gas rebates. These rewards subsidize the cost of purchases, and you can use them to get statement credits, bank account deposits, gift cards, travel, merchandise and more. Some rewards cards also offer discounts and exclusive access to shows, ball games and concerts, plus VIP treatment in airports and hotels, concierge services, special gifts, etc.

The best credit cards with rewards can save the average person hundreds of dollars per year, according to WalletHub research. A recent WalletHub survey also shows that 82% of people prefer cash back over other types of credit card rewards.

Pay Over Time

Credit cards give you the ability to buy now and pay later, even over the course of months or years.  This allows you to afford large, must-have purchases without immediately having all the cash on hand. Plus, many credit cards offer 0% introductory APRs. Using such a card for a big purchase can save you a lot on interest, as long as you pay off your balance before the regular rate takes effect.

Theft Protection

Credit cards have $0 liability guarantees, meaning you won’t lose any money if your card gets lost or stolen and you report the unauthorized charges or your credit card company catches them. You can’t say the same for cash.

Grace Period

You generally have 21 to 25 days 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, you could have up to 56 days (25-day grace period + 31 days in a billing cycle) before you have to pay your credit card issuer back for the purchases you make.

This helps your cash flow and comes in handy in the rare event that you detect unauthorized charges on your account. A credit card gives you a substantial buffer to sort out any problems before they truly affect your bank account and the rest of your finances.

Online Shopping

You may be able to use other payment methods to buy things online, including debit cards, prepaid cards, gift cards and PayPal. But credit cards are best suited to the task. Virtually all merchants accept credit cards, which also happen to have both the best fraud protection and the most generous rewards.

Hotel & Rental Car Reservations

It’s possible to rent a car or book a hotel room without a credit card in some cases. But credit cards make it easier and less expensive. Car rental companies and hotels typically place a hold on your account for incidentals, and it’s better to have your credit line tied up than the actual money in your bank account. Plus, booking with a credit card allows you to earn rewards and take advantage of any travel insurance your card might offer.

Balance Transfers

Using a 0% balance transfer credit card can help you drastically 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.

You will have to pay a balance transfer fee in most cases, but the savings on interest tend to far outweigh the cost. Around 7% of consumers who ask for a fee waiver get one, too, according to a WalletHub survey.

Travel Insurance

Credit cards can provide insurance against cancelled or delayed trips, travel accidents, lost luggage and even death. The amount of coverage you get depends on the card you have, so make sure to look into the details before traveling.

Cheap Currency Conversion

Credit cards do the conversion automatically when you make an international purchase, and they provide some of the best exchange rates possible. By using a Visa or Mastercard with no foreign transaction fees when traveling abroad, you can save close to 9% compared to popular options for exchanging hard currency. Just make sure to steer clear of dynamic currency conversion.

Online Shopping

You may be able to use other payment methods to buy things online, including debit cards, prepaid cards, gift cards and PayPal. But credit cards are best suited to the task. Virtually all merchants accept credit cards, which also happen to have both the best fraud protection and the most generous rewards.

Many credit card companies even provide virtual credit card numbers for online shopping, allowing you to make purchases while keeping your actual card information hidden. That prevents fraudsters from getting hold of your credit card info in data breaches.

Improving Financial Literacy

Credit cards are an important aspect of teaching your kids how to manage money responsibly. If used correctly by parents, credit cards can be an excellent tool for teaching kids to not spend beyond their means, even if given the temporary ability to do so. If your child is too young to get their own credit card, you can add them as an authorized user on your account, which can help them build credit even before adulthood.

Expanding your financial knowledge is important at any age, though, not just for kids. In general, having a credit card and using it responsibly is a great way for an adult to develop better financial literacy. It can help you learn how to control and monitor your spending, develop good habits around paying your bills on time, and budget your monthly expenses.

Expense Tracking

Credit cards make it easier to track your spending over time because you can see a detailed list of the transactions you’ve made and how much they’ve cost through your online account. This pays off when it comes to household budgeting, cash flow management and more.

Small Business Perks

Business credit cards provide a number of helpful features tailored specifically to the needs of small business owners. They include bonus rewards on things like office supplies and telecommunication services, robust expense tracking tools, and the ability to give employees cards with customizable limits whose rewards you keep.

Rental Car Insurance

Many credit cards automatically provide supplemental rental car insurance, which covers you in the event of damage or theft. That means you don’t need to buy the insurance the rental company offers. In fact, if you do buy it, the coverage your card provides will be nullified.

Around 67% of people trust the rental car insurance provided by credit cards more than the coverage offered by rental companies, according to WalletHub’s credit card travel benefits survey.

Extended Warranties

Some credit cards offer extended warranties on purchased items as a benefit. People sometimes waste money on extended warranties from retailers, not knowing their credit cards provide that perk for free. Only around 20% of Americans say they’ve used an extended warranty benefit on their credit card, according to a WalletHub survey.

Purchase Protection

Purchase protection is a common credit card benefit that reimburses cardholders for items they buy with their card that get damaged or stolen within a certain period of time. This further incentivizes people to use credit cards for most purchases rather than other payment methods.

Return Protection

Some cards offer return protection, which reimburses you for new, working items bought with your card that the merchant won’t accept a return for.

Price Protection

Ever buy something and then see it immediately go on sale? If your credit card has price protection, you can get reimbursed for the difference between the purchase price and a sale price you find within a certain number of days after the purchase date.

The CARD Act (applicable only to consumer credit cards)

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. It only applies to credit cards for personal use, though.

Cons of Credit Cards

Credit card disadvantages include the potential to owe expensive fees and interest, the temptation to overspend, the risk of fraud, and tricky fine print. If you’re not careful, these downsides can cost you a lot of money.

Overspending and Debt

When people use a credit card, they often spend more than they would have with cash. When our payments aren’t tangible, they don’t feel as real, which is especially true if we know we won’t have to deal with the bill for weeks.

Many people view their credit cards as supplemental forms of income, and shop based on their desires rather than necessities. Habitual overspending with a credit card will leave you with expensive debt. And from there, it is easy to find yourself unable to make monthly payments, putting you at risk for delinquency, collections or even a lawsuit.

One in four Americans say they expect their credit card debt to increase during 2025, according to a WalletHub survey.

Fraud

Americans experienced $275 million in credit card fraud in 2024. You’re assured $0 liability for unauthorized transactions made with your account, but disputing the charges can be a hassle. Fraud can also cause temporary damage to your credit report if it causes you to miss payments. So it’s important to protect your personal information and check your credit card statements for errors each month.

High Interest Rates

Credit card APRs are high compared to most other interest rates you’ll come across. For example, the average APR on a new credit card offer is 22.73%, according to WalletHub’s latest Credit Card Landscape Report.

For comparison, the average auto loan interest rate is around 6% to 8% for new cars, depending on whether you get a loan from a commercial bank or another finance company. The average 30-year fixed mortgage rate is less than 7%, according to the Federal Reserve.

Given the relatively high cost of credit card interest, you should pay credit card balances in full whenever possible. Paying in full monthly generally prevents interest from being charged.

Fees

The average credit card charges an annual fee of $25.22, which isn’t terrible. Besides, it can be worth paying an annual fee to get better rewards. It may also be worth paying a balance transfer fee to move your debts to a card with a lower interest rate.

But other fees are just a costly nuisance that you should avoid. They include cash advance fees, account overdraft fees and foreign transaction fees.

Fine Print

Credit card application disclosures are notorious for being difficult to read. But you have to review them to avoid surprises, such as increased interest rates or unexpected fees.

Vague Approval Requirements

Credit card companies will tell you that approval is based on your credit history, income and debt. You might even know the minimum level of credit (i.e. Excellent, Good, Fair, Limited or Bad) that’s required. Some issuers also give you the opportunity to check for pre-approval before you apply. But other than that, you’re pretty much flying blind, without much in the way of specifics.

Harmful When Misused

Credit cards are the best tools available for credit building. They’re fairly easy to get; they can be free to use; and they report account information to the major credit bureaus each month. But monthly credit-bureau reporting represents a fork in the road. It’s an opportunity to either build your credit or ruin it, depending on how responsibly you use your card.

If the information is negative – including missed payments and high credit utilization, for example – your credit score will suffer. Credit score damage will make it harder to get good rates on future loans, apartments, credit cards, etc. Past-due balances can also lead to collection accounts and even lawsuits. So the repercussions of serious credit card debt are pretty severe.

Deferred Interest Financing

It’s become common practice for retailers to advertise 0% introductory interest rates on their store credit cards for extended periods of time, with a catch called deferred interest. If you don’t bring your balance to zero by the end of the 0% intro period, the 0% rate goes away.

Worse still, interest retroactively applies to your entire original purchase amount at the card’s regular APR. It’s like the 0% rate was never there. So you go from thinking you’ll save a lot of money to paying through the nose. At the very least, this means you need to be very careful with retailer financing offers.

It’s important to note that general-use credit cards with 0% APRs typically don’t use deferred interest. Those are cards with a Visa, Mastercard, American Express or Discover logo.

Short-Term Credit Hit

Each time you apply for a new credit card account, your credit standing will take a short-term hit due to the hard inquiry during the application process. It will take a few months of responsible credit use to bounce back from this damage. It’s therefore a good idea to never open a credit card right before you need the best credit score possible, like if you are applying for a mortgage.

No Business CARD Act

Unlike consumer credit cards, business credit cards lack the protection of the CARD Act. Most importantly, this means creditors can increase the interest rate on business-card balances whenever they want. Fortunately, some issuers have proactively extended certain parts of the CARD Act to their business-branded products.

No Preset Spending Limit

Some cards have spending limits that can change monthly based on your usage habits and the economic environment, but it does not mean your spending power is unlimited. They’re known as No Preset Spending Limit, or NPSL, cards. Such cards make it difficult to manage your credit line and plan expenses. The way they report information to the major credit bureaus can also make it seem like your credit utilization is higher than it really is. That can cause undue credit score damage.

Household Income System

The CFPB’s decision to allow the use of shared income on credit card applications was viewed as a significant victory for stay-at-home parents. But the ruling also makes it harder for credit card companies to judge how much spending power to give us. Because applicants only have to list individual debts, credit card underwriters can’t determine how much disposable income a person really has.

In other words, someone could list their combined income with a spouse, along with their personal debts, on a credit card application. But what if the spouse already owes a lot of money? There wouldn’t be as much left over to pay for that new credit card. And that would increase the odds of delinquency and default.

How to Use a Credit Card Responsibly

1. Don’t overspend. Strive to charge only what you can pay back in full each month, unless you’re taking advantage of a 0% interest promotion to pay off a large purchase over time.

2. Keep your credit utilization low. You should use less than 30% of your credit limit at a time, or you risk credit score damage. If you charge more than that, bring your balance below 30% before your statement closes, as that date is when your utilization ratio gets reported to the credit bureaus.

3. Pay on time every month. Your payment history is the most important factor in your credit score. Always paying at least the minimum amount required by the due date is crucial.

4. Pay in full, if possible. Paying your balance in full by your due date each month is great for your credit score. It also prevents you from owing any interest on your purchases, due to your card’s grace period.

5. Don’t get cash advances. You can use your credit card like a debit card to get cash from an ATM or bank branch. However, this comes with expensive fees and interest that starts accruing right away. It’s also a red flag to your issuer if you do it frequently.

Alternatives to Credit Cards

There are other ways to pay for purchases and borrow money, but they’re usually not as good as a credit card.

Cash

Cash is accepted at most places for in-person purchases, but it’s much less convenient than a credit card. You have to carry enough with you for your purchases, and there’s little recourse for you if it gets stolen, unless the police are able to find the thief.

Debit Card

Debit cards are convenient like credit cards, and they tend to have decent fraud protection (but not as good as the protection on credit cards). However, with a debit card you must have the money available in a bank account to make a purchase, so you can’t buy now and pay later. Plus, debit cards seldom give rewards while credit cards often do.

You can learn more about the differences between debit cards and credit cards here on WalletHub.

Personal Loan

Personal loans can be a good way to borrow money, but they don’t give you access to revolving credit. In other words, you get money in a lump sum and have to pay it back over time, but you can’t keep borrowing over and over without a new application. That means they’re more suited for one-time expenses.

Borrowing From Friends and Family

You can borrow money from your friends and family, and you might get more flexible interest rates and repayment terms than you would with a credit card. But if you can’t pay the money back, you risk damaging your relationship with that person.

Bottom Line

Credit cards have both pros and cons, but they still do more good than harm at the end of the day. When used responsibly, a credit card can help you build the credit history needed to buy a home or a car. It can also lower the price of everything you buy, thanks to rewards, and it provides everyday convenience. Furthermore, the credit card market is as consumer-friendly as it’s ever been, thanks to the CARD Act.