Using a credit card for all your purchases has its upsides, as long as you aren’t adding to your debt load
You can use credit cards for almost every purchase. But should you?
It’s not always an easy choice, and habits play a role. Your preference for using a debit card versus a credit card may have more to do with your personal spending patterns than with having weighed the pros and cons of either choice.
The disadvantages of credit card purchases only outweigh the advantages when you misuse your line of credit or don’t practice responsible payment habits. Pros and cons really come down to how much discipline you exercise over your everyday spending and whether or not you pay off your credit card balance every month to avoid interest or fees.
Pros and cons of credit cards for everyday spending
Pros of credit cards
- Maximize rewards points
- Add positive information to your credit score
- Accurate purchase tracking
- Card purchase protections
- Bonus cardholder benefits
Cons of credit cards
Pros of using a credit card for everyday purchases
Maximize rewards points
This may be the most common reason for using your credit card for everything from your morning latte to late-night shopping. The more purchases you put on your card, the faster rewards points add up.
“Credit card companies have ramped up reward programs to provide cardholders with extra incentives to swipe, including travel points, cash back and more. This is a great way to get something back for all the purchases you’re making,” says Andrea Woroch, a consumer and money-saving expert.
Don’t forget to read your card’s policy and opt in to any bonus reward options when necessary.
“For example, my Bank of America card provides cash back for all purchases,” Woroch says, “and if I wait to redeem them until after I’ve collected over $300 in rewards, they give me an extra 25% back.”
Help build your credit score
To build a great credit score, you need to demonstrate that you can use a credit card responsibly and build credit history. The largest element (35%) that plays into the credit scoring model is your payment history – in other words, your pattern of using credit and paying it back on time.
There’s no need to buy large items or go into credit card debt – charging inexpensive items you have to buy anyway works just fine. Your credit card balance doesn’t even need to be high for you to build credit. Charging just $100 a month and immediately paying it off with what’s in your checking account can improve your credit score.
Better purchases tracking
When you spend cash, you can end up with a pile of receipts to sort for recordkeeping and tax purposes. With credit card spending, it’s all on your monthly statements. (You may still need your receipts for more detail.)
If you run a business or have a real estate rental, for example, simplify your recordkeeping by using a separate card for each purpose.
Running all your expenses through your credit card account can help you keep your budget on track. It can even make it easier for couples to share expenses.
“For couples who don’t want to merge bank accounts, using a credit card for shared expenses is a great alternative. This way, you can still have your own money in separate accounts for personal splurges, but keep up with the purchases you split like groceries and cable,” Woroch says.
Many credit cards help you track your spending in certain categories. Or, you can download information from your financial accounts to a budget app such as Mint.
You may not feel you need return protection on that morning doughnut, let alone an extended warranty available from your credit card. But you should consider using a credit card that offers additional purchase protection benefits when something goes wrong.
Think about your chances of wanting to return something before you pay cash.
“Today’s retailers can often track purchases made with a card even if you don’t have the receipt, making returns much easier. If you pay with cash and make a return without a receipt, you could get stuck with store credit for the lowest current selling price of that item,” Woroch says.
Bonus cardholder benefits
One of the greatest advantages of credit cards is the bonus cardholder benefits that plenty of card issuers offer. For example, the Platinum Card® from American Express offers about $1,500 in statement credits every year and the Chase Sapphire Reserve comes with a year of Lyft membership, one-year DashPass subscription, Global Entry or TSA Precheck credit every four years and $300 annual travel credit.
Cons of using a credit card
Danger of overspending
It’s easy to make an impulse purchase with a credit card. It’s practically painless (until the bill shows up, of course).
However, unless you’re checking your credit card account every day and immediately paying off the balance, you may suddenly find your credit card bill is larger than you can feasibly pay off in one payment. This can create a cycle of credit card debt, which is one of the riskiest disadvantages of credit cards.
Higher risk of fraud
Your information can be compromised any time you use your card. While your card details can be compromised even when used at a major retailer you know and trust, think twice about using your card if you have any doubts.
Interest charges and fees
If you overspend and carry a credit card balance from one month to the next, you will get charged interest and the amount will be added to your credit card bill. Every billing cycle you don’t pay off your entire balance will add more interest.
Plus, some credit cards come with annual fees that are charged to your account every year. It may or may not be worth it to pay an annual fee, depending on the rewards and credits you receive with the card – and whether or not you’re using them. Pros and cons of credit cards with annual fees come down to your personal preference and spending habits.
Short-term credit impact
While one of the advantages of credit cards is the opportunity to build credit history and improve scores, it also comes with a short-term credit impact.
When you apply for a credit card, the card issuer will most likely perform a hard credit check, which is essentially a deep dive into your credit reports. This will temporarily affect your credit score, but only in the short term. A hard credit inquiry will fall off your report. Be careful how often you apply, though. Too many credit applications are considered a red flag to issuers and lenders.
Credit card pros and cons FAQ
Why are credit cards bad?
Credit cards aren’t necessarily bad. They are financial tools you can utilize to build credit, reap rewards and earn cash back. The main disadvantages of credit cards come into play when you don’t practice responsible spending habits with your credit line.
What are three advantages of using credit?
Among the many advantages of using credit, the top three are the potential to earn rewards and cash back, purchase protection and credit-building opportunities.
What are three disadvantages of using a credit card?
There are some disadvantages of credit cards. The top three are interest and fee charges, risk of credit card debt and increased potential for fraud.
The pros and cons of credit cards should be considered whenever you’re in the checkout line or online shopping. First, credit cards are helpful tools that can build credit, give you cash back for other purchases and provide consumer protections.
But the cons of credit cards can outweigh the pros if you’re not careful. Avoid the vicious cycle of credit card debt by spending within your budget and paying off your monthly credit card statement on time.