Credit cards are a financial responsibility that can offer both benefits and disadvantages. Credit cards allow you to borrow ongoing money up to a certain amount. You must pay this back, ideally by the end of the month. Your bank or financial institution will send you a bill at the end of each month. There is a credit limit for each person, which is the amount of money you can borrow up to. This limit will vary from person to person, based on your income, expenses, and credit score.
It’s a good idea to consider the pros and cons of a credit card before you apply for one. Consider whether it is the right choice for you and whether it is a financial responsibility that you can take on.
Can I get a Credit Card with a Bad Credit Score?
Pros of Credit Cards
Build Credit History
Your credit score is the number given to you based on your credit history – how often you pay your bills on time. With a credit card, your bank or financial institution will send you a bill at the end of each month of the balance of your credit card. If you pay this off in full each month, you can positively impact your credit score. This can be great for “future you” if you ever decide to apply for a personal loan or a home loan, as it can show lenders that you can consistently pay off your debt. Generally, you should always pay off your credit card balance at the end of each month so you can enjoy a positive credit score.
Enjoy Credit Card Rewards
Many credit cards offer exciting rewards, which can be a great way to make your money and spending work in your favour.
Some credit cards offer airline rewards. For example, American Express credit cards can be linked to Air New Zealand, and you can earn Airpoints for a certain amount spent on the card. It’s important to pay off the balance of the loan to avoid accumulating interest which would negate the points earned.
Other credit cards offer cashback rewards. These tend to work by giving you money when you purchase a certain amount on the card. For example, you could choose a 1% credit card back back option. This means that, by spending $10,000 on the card in a year, you can receive $100 back. Again, it’s important to pay the balance off each month to make sure your interest doesn’t combat the rewards earned.
Theft and Scam Protection
Credit cards can offer protection against theft and scam purchases made on them. These transactions are generally easier to be refunded because they can often be quickly and simply traced and charged back. It’s important to contact your bank or credit card provider immediately if you notice any suspicious activity.
Cons of a Credit Card
Interest Can Add Up
If you don’t pay off the full balance of your credit card each month, you will accrue interest. Credit card interest rates can generally be higher than other types of loans, and it can add up quickly if you are not on top of them. Therefore, it’s really important that you only spend what you can comfortably afford. This can also negatively affect your credit history and credit score.
Impulse Spending
Because credit cards give you access to money you don’t necessarily have at that moment in time, they can create the perfect environment for temptation and impulse buying. If you use the credit card impulsively and buy things you haven’t budgeted for and can’t pay back, you can fall into a tricky situation of accumulating debt. Even if the item is on sale, if you can’t pay the balance off in full, that interest can negate the savings made on a discounted product. If you struggle with impulse purchases, a credit card may not be right for you. Luckily, you can always apply for a debit card instead.
Compare Credit Cards
Before you commit to a credit card, it’s important to consider whether it is the right option for you, and compare the different choices available to you. Jump on Money Compare and compare some of the options on the market. Decide whether you’d like to reap rewards such as Airpoints, or if you’d prefer a low or no annual fee for the card. Compare to make sure you are making a fully informed choice and finding the right card for your unique needs.
Compare American Express Credit Cards
Further Reading:
