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Advantages and disadvantages of a credit card

Decide if a credit card is right for you with our comprehensive list of pros and cons.

Credit cards can be a convenient way to manage your finances, but they can also be expensive and risky. If you’re deciding whether or not a credit card is right for you, here are some of the main advantages and disadvantages you can weigh up to make your decision.

Adv & Disadv

9 Advantages of using a credit card

Some of the perks of paying with plastic include:

  1. A credit card is safer than carrying cash. While there’s only a small chance of having lost or stolen cash returned, a credit card can quickly be cancelled if you lose your wallet. Most financial institutions also have security processes in place to protect you if your card has been lost or stolen or if you suspect your account has been used for a fraudulent transaction.
  2. A credit card can build your credit rating. Your credit card account details and payment history make up a key part of your credit file. If you keep your account in good standing, this information will help you build up a good credit score, which could increase your chances of approval for other products such as car loans or a mortgage.
  3. You can get interest-free days. If you pay your balance in full before the statement period ends, you can be rewarded with interest-free days on future purchases for a set period.
  4. Earn reward points when you spend. Rewards and frequent flyer credit cards allow you to earn reward points on every dollar you spend on eligible purchases, such as groceries and fuel. Rewards credit cards let you earn reward points to redeem with the bank’s rewards programs for perks including flights with partner airlines, products from the rewards store or cash back. Frequent flyer credit cards, on the other hand, let you earn flights with specific airline loyalty programs.
  5. You can request a chargeback if you’re unhappy with a product or service. You can request a chargeback through your credit card company if you have a dispute with a merchant, either in-store or online.
  6. Credit cards work in any currency. Although currency conversion fees usually apply, you can use your credit card overseas to make purchases in a foreign currency. There are even credit cards that waive fees for international purchases, which could be useful if you often shop at international online stores or have an overseas holiday coming up.
  7. Credit cards give you an emergency line of credit. Credit cards can be a financial safety net if you don’t have enough cash or savings to cover any unexpected costs that arise. Remember that you have to repay everything you owe, though.
  8. Credit cards often have complimentary extras. Credit card features such as travel insurance, purchase protection and extended warranty insurance can save you money and give you peace of mind. Other value-adding features include complimentary flight offers, airline lounge passes and even free wine when you dine.
  9. You can consolidate debts and save money on existing balances. Balance transfer credit cards allow you to move existing high-interest debts to a new account with a low or 0% promotional interest rate. This can save you money on interest charges and help you pay down debt faster.

7 Disadvantages of using a credit card

The downsides of spending with a credit card include:

  1. Paying high rates of interest. If you carry a balance from month-to-month, you’ll pay interest charges. Purchase and cash advance interest rates can be as high as 22% p.a., so you can end up paying hundreds or thousands more than you initially charged in interest if you’re unable to make repayments each month.
  2. Credit damage. Missed credit card repayments and ongoing debts are recorded on your credit file and can impact your chances of getting a loan down the track. See our guide on how to improve your credit file for some tips.
  3. Credit card fraud. There are a range of fraud schemes that target credit cards. While you can be compensated for illegal transactions on your account, dealing with credit card fraud can still be a time-consuming and stressful experience.
  4. Accessing cash is expensive. Financial institutions make it very expensive to use your credit card to get cash out or make other “cash equivalent” transactions (such as buying foreign currency or gambling). Using a credit card for a cash withdrawal will attract a cash advance fee worth around 3% of the total transaction amount. It also typically attracts an interest rate of 19-22% right away.
  5. Annual fees. While you can often get debit cards without annual fees, most credit cards have them. These can cost as little as $25 per year, or as much as $1,200 depending on the card that you choose. Generally, the more perks you want, the higher the annual fee. If you want to avoid this charge, you can consider a no annual fee credit card – but make sure you look at all the other features to help find a card that works for you.
  6. Credit card surcharges. Businesses often apply a surcharge when you pay with a credit card. For Mastercard and Visa products, this fee is usually 0.5-2% of the total transaction cost, while for Amex cards it could be closer to 3%. Whatever the case, this is an extra cost for the convenience of paying with plastic.
  7. Other fees can quickly add up. Depending on your card, you could be charged fees when you miss a payment, fees if you spend past your credit limit, fees for overseas transactions, balance transfer fees and even some rewards programs fees. If you carry a balance or don’t have access to interest-free days, there’s also a good chance interest will be applied to these charges.

Should I use a credit card?

blondy-with-laptop-holding-a-creditcard copy
Credit cards are suited to certain types of people, but not others. As well as considering the pros and cons, you may like to look at the following factors to help decide if a credit card is right for you.

A credit card may suit you if you

      • Are at least 18 years of age
      • Are an Australian citizen, permanent resident or hold an eligible temporary visa
      • Have a regular source of income
      • Regularly pay your bills on time
      • Want to keep certain transactions separate from your everyday bank account
      • Are keen to earn rewards for your spending
      • Need more flexible cashflow
      • Can afford to pay a little extra for the convenience

A credit card may not suit you if you

      • Don’t meet the age or residency requirements
      • Often struggle to pay bills on time
      • Don’t have a regular source of income
      • Can’t afford annual fees or interest charges
      • Have bad credit
      • Are happy to just use a debit card

If you’re thinking about getting a credit card, it’s important to consider the benefits and disadvantages they offer based on your own circumstances. As well as helping you decide whether a credit card is right for you, this process can narrow down the range of cards you compare so that you can find an option that works for you.

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Compare credit cards

Rates last updated August 19th, 2017
Name Product Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee Product Description
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
20.74% p.a.
0% p.a. for 18 months
$129 p.a.
Apply by 31 October 2017 to receive a long-term, no fee balance transfer and a $129 Virgin Australia Gift Voucher each year.
HSBC Platinum Credit Card
19.99% p.a.
0% p.a. for 22 months with 2% balance transfer fee
$99 p.a.
Earn 1 Reward Point per $1 of eligible spend and receive complimentary travel and purchase protection insurances.
ANZ First Visa Credit Card
19.74% p.a.
0% p.a. for 16 months with 2% balance transfer fee
$30 p.a.
Get up to 44 interest-free days on purchases and take advantage of a low minimum credit limit.
Citi Rewards Platinum Credit Card
20.99% p.a.
0% p.a. for 24 months with 1.5% balance transfer fee
$49 p.a. annual fee for the first year ($149 p.a. thereafter)
An introductory rate on balance transfers with a rewards program offer.
Citi Simplicity Card
19.99% p.a.
0% p.a. for 6 months
$0 p.a.
Earn 10% cashback on eligible purchases (capped at $50 per month) for the first 4 months from card approval.
HSBC Platinum Qantas Credit Card
19.99% p.a.
0% p.a. for 6 months
$199 p.a.
Receive 60,000 bonus Qantas Points when you meet the spend requirement and earn up to 1 Qantas Point per $1 spent.
ANZ Platinum Credit Card - Exclusive Offer
0% p.a. for 3 months (reverts to 19.74% p.a.)
0% p.a. for 12 months
$0 p.a. annual fee for the first year ($87 p.a. thereafter)
Exclusive to finder, receive 0% p.a. interest on purchases for 3 months and 0% p.a. on balance transfers for 12 months with no balance transfer fee.
NAB Low Fee Card
19.74% p.a.
0% p.a. for 16 months with 2% balance transfer fee
$30 p.a.
Receive complimentary purchase protection insurance, special offers from Visa Entertainment and up to 44 days interest-free on purchases.
St.George Vertigo Platinum
12.74% p.a.
0% p.a. for 20 months
$99 p.a.
Offers complimentary travel insurance, complimentary purchase insurance and access to a 24/7 personal concierge service.
St.George Vertigo Visa
13.24% p.a.
0% p.a. for 14 months
$0 p.a. annual fee for the first year ($55 p.a. thereafter)
Receive up to 55 days interest-free on purchases and the ability to make contactless payments with Visa payWave technology.
ANZ Frequent Flyer Black
19.99% p.a.
$0 p.a. annual fee for the first year ($425 p.a. thereafter)
Receive 75,000 bonus Qantas Points when you apply online, are approved and spend $2,500 on eligible purchases in the first 3 months.
NAB Low Rate Platinum Card
13.99% p.a.
0% p.a. for 16 months with 2% balance transfer fee
$100 p.a.
Enjoy the protection of 7 complimentary insurances including overseas travel and purchase protection insurance.
NAB Rewards Platinum Card
19.99% p.a.
0% p.a. for 6 months
$195 p.a.
Collect 50,000 bonus points when you spend $2,500 on everyday purchases within 60 days of account opening.
NAB Low Rate Credit Card
13.99% p.a.
0% p.a. for 16 months with 2% balance transfer fee
$59 p.a.
Receive up to 55 days interest-free on purchases, special offers from Visa Entertainment and Tap and Pay capabilities.
American Express Essential®  Credit Card
14.99% p.a.
0% p.a. for 12 months with 1% balance transfer fee
$0 p.a.
Receive a $50 credit when you apply online, are approved and spend $750 on your new card within the first 3 months of card membership.
Qantas American Express Premium Card
20.74% p.a.
0% p.a. for 12 months with 1% balance transfer fee
$249 p.a.
Enjoy two complimentary Qantas Club lounge invitations per year, plus the protection of complimentary travel and purchase insurance.
American Express Velocity Escape Card
20.74% p.a.
0% p.a. for 12 months with 1% balance transfer fee
$0 p.a.
Earn uncapped Velocity points on purchases and redeem for a range of rewards including flights, accommodation, car hire and gift cards.
Bank of Melbourne Amplify Platinum
19.49% p.a.
$99 p.a.
Earn up to 2 Amplify Rewards Points per $1 spent and receive complimentary travel insurance and purchase protection.
NAB Rewards Classic Card
19.99% p.a.
0% p.a. for 6 months
$95 p.a.
Earn 0.75 NAB Rewards Points per $1 spent and receive complimentary purchase protection insurance.
28 Degrees Platinum Mastercard
21.99% p.a.
4.99% p.a. for 6 months
$0 p.a.
Designed for travel, benefit from no international transaction fees on purchases and no currency conversion fees.

Compare up to 4 providers

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