Deciding whether you should get a credit card can be tricky. On the one hand, a credit card can give you financial flexibility, providing a quick and easy way to borrow, particularly for big-ticket purchases. Other potential advantages include cashback and rewards, and the positive impact a credit card can have on your credit score.
On the other hand, having a credit card comes with great responsibility – none more so than properly managing your repayments so that you don’t end up with debt you can’t afford.
» MORE: How credit cards work
When you may want to get a credit card
There are many times when getting a credit card could prove useful, including:
To spread the cost of purchases
When faced with a large or unexpected expense, there are certain credit cards which let you spend and don’t charge you any interest for a fixed number of months. The way 0% purchase credit cards work could make them useful if you need to spread the cost of an expensive item over a period of time. But you’ll still need to make a minimum repayment each month, and aim to pay off your balance before the interest-free period ends to avoid the hefty rates that usually follow.
For cheap borrowing
You won’t usually be charged interest if your balance is fully paid off by the deadline each month. As a result, it’s possible to borrow on a credit card and never pay for the pleasure of doing so (the exception might be if you make cash withdrawals). In addition, you can spend using a 0% purchase credit card and have a certain number of months before interest is charged.
For convenience and emergencies
When you need to buy or pay for something now but payday is still a few weeks away, a credit card could bridge that gap. In particular, a credit card could offer a convenient way of paying emergency bills – car repairs, a broken boiler, or new fridge – if you haven’t got the cash to pay up front. If you can afford to, it’s still worth thinking about saving for an emergency fund so you can pay for unexpected costs.
To transfer expensive debt via a balance transfer
If you already have credit card debt you’re struggling to pay off, switching what you owe to a 0% balance transfer card may be worthwhile. That’s because balance transfer cards work by giving you a set amount of time to pay off the debt you bring over either without being charged any more interest, or at least at a lower rate to what you’ve been paying. You can get interest-free terms that stretch for longer than 30 months in some instances.
These credit cards can also be used to consolidate what you owe across a number of cards into one place, so your debt is easier to manage and you have only one payment to make.
A fee is usually charged for each balance you bring over and, crucially, you should try to clear your balance, or look to switch again, before the grace period ends.
When consolidating your debts it’s worth remembering that it could take you longer to pay off the debt and that you may end up paying more interest if you don’t pay off the card before the low rate ends.
To get protection on purchases
Buy something with your credit card for more than £100 but less than £30,000 and your purchase will be protected under Section 75 of the Consumer Credit Act. For instance, if you pay for flights on your credit card and the airline folds ahead of your journey, you can put in a claim to your credit card provider to get your money back.
Even if your purchase costs too much or too little to qualify for Section 75 protection, you may still get similar protection under ‘chargeback’. This is a scheme that card operators American Express, MasterCard and Visa voluntarily offer if you pay for something with one of their credit cards and it’s faulty or never arrives. However, unlike Section 75, chargeback is not a legal right.
To boost your credit score
If there is room for improvement in your credit score, or you have little credit history at all, taking out a credit card, and using it sensibly, could help. Repaying your balance in full each month and not exceeding your credit limit both have the potential to boost your credit standing. But miss a payment, and your rating could easily head in the wrong direction.
There are also some credit cards, known as credit builder cards, specifically designed to help you improve your credit score.
To pay without fees if you’re going abroad
Most credit or debit cards when you’re abroad charge extra on what you actually spend or withdraw. So if you’re going overseas, and want to use a card while you’re away, you could apply for a specialist credit card that has no fees for foreign transactions.
To earn rewards on your everyday spending
If you use a credit card regularly, think about exploring cards that reward you for your spending. With some rewards cards you’ll accumulate points which can be exchanged for vouchers or gifts, or maybe discounts on hotels and leisure activities. Air miles credit cards let you swap your points for flights.
Alternatively, there are cashback credit cards which will pay you back in cash a certain percentage of what you spend. What you get will generally depend on how much, and where, you spend. But don’t fall into the trap of spending just to chase the rewards on offer.
When a credit card may not be a good idea
Despite the many reasons why a credit card might seem right for you, there are also times when applying for a credit card probably won’t be the best choice. These might include:
If you’re struggling to stay on top of your finances
If you borrow more on your credit card than you can afford to repay each month, you can quickly run up debts that you will struggle to repay. This can be a problem with any type of credit card, particularly if you find it difficult to keep your spending under control.
Ideally, you would pay off your entire credit card balance each month. But at the very least, make sure the minimum repayments you need to make are easily affordable to you. Missing a payment can hurt your credit score as well.
Crucially, paying the bare minimum every month won’t clear the debt, so you’ll also need a plan for how you intend to pay it all off.
If you’re making use of an interest-free purchase or balance transfer period, you’ll also need to plan how you intend to pay everything back before interest is charged.
» MORE: How to pay off credit card debt
If you’ve recently applied for credit
Every time you apply for credit it is recorded on your credit report. While being rejected for a credit card won’t hurt your credit score, if a lender sees you’ve made a lot of credit applications in quick succession they might worry about your wider finances and be reluctant to offer you a credit card as a result.
» MORE: All about applying for a credit card
If you want to withdraw cash
Every time you make a cash withdrawal with a credit card you’ll pay a fee. The balance you build up related to cash withdrawals will also often attract a higher interest rate than when spending using your card. There are no interest-free periods on cash withdrawals either.
What are the advantages and disadvantages of a credit card?
Benefits of credit cards
There are several advantages to having a credit card, including:
- the convenience to buy now, pay back later
- help with spreading the cost of purchases
- the potential for interest-free borrowing
- a useful means of covering emergency bills
- protection for your purchases
- the potential to boost your credit score
- balance transfers, which can be used to lower the cost of existing debt
- the potential for cashback and rewards
- protection if you lose your card or you’re a victim of fraud
Disadvantages of credit cards
But watch out for these drawbacks, which include:
- the potential for high interest payments outside 0% periods and if you don’t clear your balance
- debt that can quickly grow, especially if you miss payments
- the temptation to spend money that you don’t have
- hurting your credit score by missing payments and overborrowing
- potentially high charges for cash withdrawals, overseas use, exceeding credit limit, and missed payments
Do I need a credit card to build up a credit history?
Having a credit card isn’t essential for building up a credit history but it can help. Paying off your balance each month and keeping within your credit limit both demonstrate that you’re a sensible borrower and can help improve your credit score. On the other hand, missing payments and borrowing too much can hurt your credit standing.
If you do want to use a credit card to build up your credit history, some lenders offer cards that are specifically designed with this purpose in mind.
Do I need a credit card to get a mortgage?
Having a credit card is not a specific requirement for getting a mortgage. However, a properly managed credit card can boost your credit score.
Can I just use a debit card instead of a credit card?
If you have money in your bank account, you might want to consider using a debit card rather than a credit card. As long as you don’t use your overdraft, you’re spending your own money using a debit card, and so won’t be charged, as opposed to borrowing money with a credit card, where you might have to pay fees and interest. You shouldn’t be charged for making cash withdrawals with a debit card either, assuming you’re not in your overdraft or using an ATM that charges you for withdrawals.
That said, there can be advantages to using a credit card over a debit card, including:
- allowing you to borrow to bridge financial gaps, perhaps until you’re paid, or when you have an unexpected expense
- protection for your purchases through Section 75 and chargeback
- the potential to earn cashback and rewards
- certain credit cards which can be used overseas at no extra charge
» MORE: Credit cards vs debit cards
Am I eligible for a credit card?
Generally speaking, credit card providers will look at your financial situation and your credit record before deciding whether you’re eligible for a credit card. If you have a mortgage, loans or other credit cards already, you’ll stand a better chance of getting a new card if you’ve kept up with your repayments and stayed within your borrowing limits.
It might also be worth cancelling any old cards you no longer use, and checking that the electoral register shows that you reside at your current address.
If your credit standing is less than perfect, there are credit cards aimed at those with weaker credit scores. These often have less generous credit limits and interest charges can be high as a result.
What are the alternatives to a credit card?
A direct debit card might be an alternative to a credit card if you have funds available in your current account. But if you need to borrow, there are other options besides credit cards you might want to consider.
When you have a bank account, you’ll also usually have an overdraft you can dip into, maybe even free of charge up to a certain amount. Or if you need to borrow a larger amount or for a longer period of time (longer than the interest-free periods available on purchase credit cards), taking out a personal loan could be an alternative to consider.
Interest rates, charges, flexibility and how long you expect to need to borrow can all be important in determining which option is best for you.
Advantages and Disadvantages of Credit Cards
It’s important to know the potential advantages and disadvantages of credit cards before applying for one. Even though credit cards can be useful, there are some risks to be aware of too.