Credit cards are like a chef’s knives – menacing in the wrong hands yet beneficial if you know how to use one. If used wisely, it is a flexible way to pay for your expenses and purchases, especially if you want to buy something big.
If you want to apply for credit card, considering its pros, cons and even some myths will help you decide on whether or not you need one. Let’s get right into it.
The Pros Of Having A Credit Card
With credit cards, you no longer need to make frequent visits to ATMs or get embarrassed while searching for change – you can walk around in style and swipe this plastic card. There are numerous benefits that come with a credit card. Here are some of them.
1. Pay Later
A notable advantage of credit cards is that they let you buy now and pay later. Even while paying back, you don’t have to pay the full amount. You can pay off the balance over a period of time. This makes it easier for you to make big purchases instantly, especially when you are out of cash.
2. Purchase Worldwide
With credit cards, you get the power to purchase anywhere – locally, overseas, and even online. In fact, some eCommerce websites accept only credit cards.
3. Safer Than Cash
If your card is stolen, there’s no need to panic. Just call your bank and cancel it quickly. Also, if it is used fraudulently, you will, in most cases, be able to claim the money back.
4. Build Credit Score
Let’s face it. No banks want to lend you money if your credit scores are bad, especially at low-interest rates. If you use credit cards to make frequent purchases and pay your credit card bills without fail, then your credit score will boost in just a few months.
5. Purchase Protection
If the transaction goes wrong while purchasing with a credit card for an amount between £100 and £30,000, there’s no need to worry. According to Section 75 of the Consumer Credit Act 1974, you can claim the amount back from your credit card provider.
Using a credit card for payment can help you gain rewards, which can be used as discounts while booking flights, hotels and even while purchasing online.
The Cons Of Having A Credit Card
Nothing is all good. Along with all the benefits of a credit card, there are drawbacks to using it. Let’s look at some of them.
1. High Cost Of Borrowing
The interest rates of credit cards are typically higher than that of a traditional loan. Along with that, the service fees and late payment penalties are also higher.
2. Affects Your Future Income
Borrowing money has a severe impact on your future income. When you use a credit card, you are borrowing money that you don’t have, which puts the burden on your future-self.
3. Leads To Overspending
Immediate access to additional funds may urge you to buy things you don’t really need. Overspending can push you to unimaginable depths of debt. Also, more debts will make it harder for you to pay them off.
4. Demolish Credit Score
Just how credit cards can build your credit score, they can raze it to unrepairable extents. Missing your payments or building up credit card debt can significantly affect your eligibility for a loan.
5. Expensive For Abroad Use
Depending on your credit card provider, purchasing abroad can attract massive amounts of fees and transaction charges. Some providers might charge you for using credit cards to withdraw cash as well.
6. Pre-Authorisation Cuts Down Your Limit
While checking in to hotels or renting cars, the respective companies might pre-authorize your card, which will put a temporary hold on some of your credit card limit. This would restrict you from using your card’s limit entirely.
Myths About Credit Cards
Knowing what’s right and what’s not might help you decide on whether you need a credit card or not. Let’s delve into some of the popular myths revolving around credit cards and demystify them, one-by-one.
1. Minimum Payments Will Do
This might sound technically right, and it is. You can play safe by making minimum repayments each month, but the question is for how long?
Making minimum payments means you will be paying more into the interest than the actual amount. If you go with just minimum payments, it will take years before you clear your debt. Don’t allow this situation to happen and repay big amounts whenever possible.
2. It’s Okay To Miss A Payment
Unfortunately, no. Missing one payment can negatively affect your credit score, more than you think. Along with that, you will have to pay large amounts of late payment penalties.
3. More The Number Of Credit Cards, Higher The Credit Score
Your credit rating is not just determined by your credit cards. Your duration of credit history and repayment of other loans can affect your credit score equally. However, if you pay credit card bills without fail for all your credit cards, it can improve your credit score.
4. You Won’t Get A Credit Card With No Credit History
There’s always a first time for everything – even for credit cards. Luckily, you can get a credit card without any credit history. But your credit limit will be really low. In fact, even if you have a bad credit score, you can apply for credit cards for bad credit uk and build your credit score.
5. If Your Partner Has A Bad Score, Your Score Will Also Be Affected
Living with someone or even marrying someone doesn’t create a financial relationship. It only happens when you commonly borrow money. So, to put it simply, your credit score won’t affect your partner’s score and vice versa.
As you can see, credit cards are not really the villains they are often told to be. If you pay the bills on time and keep your balance low, credit cards will have your back in times of emergencies. The key is to spend wisely and rethink your purchase decisions every time.