Updated
Fact Checked
Eric McWhinnie
If you're not using credit cards, you may be avoiding them because you assume they're risky or they form bad habits. But your assumptions may be off.
Are credit cards bad? The short answer is no. But you should always be careful when using credit cards so you stay within your limits.
If used responsibly, credit cards can be a powerful personal finance tool, and they can help you build credit. If used without care, they could result in consequences that negatively impact your life and finances.
The following guide will help you better understand the potential risks and rewards of using credit cards.
The benefits of credit cards
Let's start with the benefits of credit cards. If you've been avoiding credit cards because you assume they're bad, you should know that credit cards can be a smart personal finance tool when used properly.
Here are some of the top benefits of credit cards.
Credit cards are a convenient payment tool
Credit cards offer an easy and convenient way to pay for purchases. Most retailers take credit cards. Plus, you can use them to make online purchases.
You could earn rewards
With the right credit card, you could earn valuable rewards by spending with your card. Redemption options vary, but generally speaking, the points you earn can be traded in for valuable rewards such as cash back, a statement credit, or travel.
Credit cards can help you build credit
A credit card can help you build credit and raise your credit score if used responsibly. Various factors go into your credit score -- so be sure to make wise choices so you're positively impacting your credit.
You get fraud protection
Most major credit card issuers offer $0 fraud protection -- so if your card is used fraudulently, you won't be liable for any charges incurred. Debit cards don't have this 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 take advantage of extra perks that 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 First-Time Credit Card Users Need to Know
The dangers of credit cards
If you're wondering if credit cards are bad, you may already be aware of some of the risks that can come with using a credit card. Here are some of the top dangers of credit cards.
Fees can add up
When using credit cards, fees can add up quickly. Some cards charge an annual fee -- and some are much higher than others. Other fees like late payment fees can also be costly.
Evaluate all fees before opening a new credit card.
Your credit score could suffer
If you're making poor financial choices when using credit cards, your credit score could decline. Carrying high credit card balances and making late payments are examples of bad choices that could result in a drop in your credit score.
Interest charges can be expensive
If you don't pay your credit card balance in full every month or charge more than you can afford to pay off, you'll pay interest charges. Credit card interest can accumulate fast.
Most credit cards charge interest -- unless you're using a card that offers a limited-time 0% APR on purchases or balance transfers. But these 0% interest rate promotions have time limits and restrictions.
READ MORE: Best 0% APR Credit Cards
You might overspend
When you have a credit card, there will be a limit to how much you can charge. If you have a high credit limit, it could be easy to overspend beyond your means.
It's important to limit your spending. If you're not careful, you may spend so much you end up going over your credit limit -- which means your credit card will likely be denied the next time you try to use it.
You could end up in credit card debt
If you do overspend and continue to use your credit cards, your choices may result in credit card debt. This debt will only continue to grow if you ignore it.
Many consumers find themselves in credit card debt. The average American's credit card debt is over $6,000 -- which is a lot of money. If you find yourself struggling with debt, you should prioritize getting out of credit card debt as quickly as possible.
While the idea may seem daunting, it's possible to tackle paying off a lot of credit card debt.
How to use credit cards responsibly
Credit cards can be a beneficial personal finance tool, but you need to think through purchase decisions first if you plan to pay with a card.
Here are some tips to help you use credit cards responsibly:
Pay every credit card bill on time
Late payments will result in late fees. Plus, missing payments entirely or making late payments can negatively impact your credit.
Your payment history makes up 35% of your FICO® Score. Pay your credit card bills on time every 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 every month. By doing this, you can avoid expensive interest charges. If you can't afford to pay your credit card balance off, pay as much as you can afford so you minimize interest charges.
Don't use all of your available credit
Using less of your available credit will result in lower credit utilization. Your credit utilization ratio makes up 30% of your FICO® Score. Keeping your credit utilization low could result in a better credit score.
Don't close your credit card accounts
If you're not using a credit card regularly, consider keeping the account open and using it occasionally, rather than calling up the credit card company to cancel it. The length of your credit history makes up 15% of your FICO® Score -- so having accounts open for more time is beneficial for your credit.
READ MORE: Pros and Cons of Credit Cards
Are credit cards bad?
So, are credit cards bad? No, credit cards aren't all bad news.
If you use credit cards responsibly, like only charging what you can afford to pay off, they can make your life easier and offer a great way to build credit.
If you want to avoid problems, 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 expensive interest charges.
You can improve your financial situation with savvy credit card spending and payment habits. Check out our best credit cards list to find the right credit card for your needs.
FAQs
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No, a credit card isn't required to get a credit score. While you don't need a credit card to get a credit score, having credit cards and using them responsibly can help you build credit and improve your credit score.
You can also establish credit in other ways, like taking out loans. Without any credit, you'll likely have a poor credit score.
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There are benefits and drawbacks to using credit cards. You can build credit, earn rewards, conveniently make purchases, get fraud protection, and take advantage of extra perks.
But there are some cons, too. Interest may be charged if you don't pay your balance in full. You may also get into credit card debt if you overspend beyond your means. What's more, fees can add up fast if you make late payments.
Use credit cards with care, so you experience more benefits than drawbacks.
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It depends. If you use credit cards responsibly, they can be a positive financial tool that helps you build smart financial habits while growing your credit score.
However, if you don't use credit cards responsibly, they can harm your credit. If you miss payments or make late payments, allow credit card debt to accumulate, or use too much of your available credit, your credit score could suffer.
Our Credit Cards Experts
Natasha has been a freelance writer since 2015. She specializes in credit card and credit card rewards content. When not busy writing, she's either dreaming up her next credit card rewards redemption or traveling the globe. Her goal is to encourage more people to experience the world around them while making smart financial choices.
Steven is a personal finance writer covering topics from mortgages to credit cards to market news. He has written for The Motley Fool Canada, Ramsey Solutions, Nerdwallet, Clever Real Estate, and other major outlets. Steven launched his writing career at the age of four with his first book, "Revenge of the Bad Guys." He currently lives in Portland, Oregon.
Fact Checked
Eric McWhinnie
Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.
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