Are credit cards bad? | the ascent

The advantages of credit cards

Let’s start with the benefits of credit cards. If you’ve avoided credit cards because you think they’re bad, you should know that credit cards can be a smart tool for personal finance when used correctly.

Here are some of the main benefits of credit cards:

Credit cards are a convenient payment tool

Credit cards offer an easy and convenient way to pay for your purchases. Most retailers accept credit cards. Moreover, you can use them to make online purchases.

You could win rewards

With the right rewards credit card, you could earn valuable rewards by spending with your card. Redemption options vary, but you can redeem earned points for valuable rewards such as cash back, statement credit, or travel.

Credit cards can help you build credit

A credit card can help you build credit and boost your credit score if used responsibly. A variety of factors go into your credit score – so be sure to choose wisely in order to have a positive impact on your credit.

You get fraud protection

Most major credit card issuers offer $0 fraud protection. Thus, if your card is used fraudulently, you will not be liable for these charges. Debit cards do not have the same level of protection and the dispute process can be lengthy.

Many credit cards offer valuable perks

With the right credit card, you may be able to enjoy additional benefits that will help you save money or make your life easier. These benefits can add more value to your life and make using a credit card more attractive.

READ MORE: What new credit card users need to know

The dangers of credit cards

If you’re wondering if credit cards are bad, you might already know some of the risks of using a credit card. Here are some of the main dangers of credit cards:

Fees can add up

When you use credit cards, charges can add up quickly. Some cards charge annual fees – and some are much higher than others. Other fees like late payment fees can also be costly.

Assess all charges before opening a new credit card.

Your credit score could suffer

If you make poor financial choices when using credit cards, your credit score could drop. Having high credit card balances and making late payments are examples of bad choices that could cause your credit score to drop.

Interest charges can get expensive

If you don’t pay your credit card balance in full each month, or if you charge more than you can afford, you’ll incur interest charges. Interest on credit cards can add up quickly.

Most credit cards charge interest unless you’re using a card that offers 0% APR for a limited time on purchases or balance transfers. But these 0% interest rate promotions have time limits and restrictions.

READ MORE: Best 0% APR Credit Cards

You may overspend

When you have a credit card, there will be a limit to the amount you can charge. If you have a high credit limit, it might be easy to spend beyond your means.

It is important to limit your expenses. If you’re not careful, you risk spending so much that you’ll end up going over your credit limit, which means your credit card will likely be declined the next time you try to use it.

You could end up with credit card debt

If you overspend and continue to use your credit cards, your choices can lead to credit card debt. This debt will only continue to grow if you ignore it.

Many consumers find themselves in debt on their credit cards. The average American’s credit card debt is over $6,000, which is a lot of money. If you find yourself in credit card debt, you should prioritize settling credit card debt as soon as possible.

Although the idea may seem daunting, it is possible to tackle paying off a lot of credit card debt.

How to use credit cards responsibly

Credit cards can be a great personal finance tool, but you need to think about your purchasing decisions first if you’re considering paying with a card.

Here are some tips to help you use credit cards responsibly:

Pay every credit card bill on time

Late payments will incur late fees. Additionally, missing payments or making late payments can negatively impact your credit.

Your payment history represents 35% of your FICO® score. Pay your credit card bills on time each month to avoid repercussions.

Pay your credit card bill in full

If possible, the best practice is to pay your credit card bill in full each month. By doing this, you can avoid costly interest charges. If you can’t afford to pay off your credit card balance, pay as much as you can to minimize interest charges.

Do not use all your available credit

Using less of your available credit will result in less credit usage. Your credit utilization rate is 30% of your FICO® score. Keeping your credit usage low could translate to a better credit score.

Don’t close your credit card accounts

If you don’t use a credit card regularly, consider keeping the account open and using it occasionally, rather than calling the credit card company to cancel it. The length of your credit history accounts for 15% of your FICO® score – so having accounts open longer is good for your credit.

READ MORE: Advantages and disadvantages of credit cards

Are credit cards bad?

Are credit cards bad? No, not all credit cards are bad news.

If you use credit cards responsibly, such as only charging what you can afford, they can make your life easier and provide a great way to build credit.

If you want to avoid trouble, make an effort to pay your credit card bills on time and pay off the entire balance, or as much as you can afford to avoid costly interest charges.

You can improve your financial situation with smart credit card spending and payment habits. Check out our list of the best credit cards to find the right credit card for your needs.

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