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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.

credit card advantages and disadvantages infographic

9 advantages of using a credit card

Some of the perks of paying with plastic include:

  1. Security. 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. Build your credit score. Your credit card account repayment 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. 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 points. 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 cashback. Frequent flyer credit cards, on the other hand, let you earn points towards flights, upgrades and more 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. Spend overseas. 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. Emergency funds. Credit cards can be a financial safety net if you don’t have enough cash or savings to cover any unexpected costs that arise. Just remember that you have to repay everything you owe.
  8. 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. Consolidate and pay off existing debts. 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. Interest rates. 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. Cash advance costs. 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 sometimes 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. 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?

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 cash flow
  • 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.

Pictures: Shutterstock

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Compare credit cards

Data indicated here is updated regularly
Name Product Purchase rate (p.a.) Balance transfer rate Annual fee
Citi Rewards Card
21.49% p.a.
0% p.a. for 26 months with 1.5% balance transfer fee
$0 p.a. annual fee for the first year ($199 p.a. thereafter)
Save with 0% interest on balance transfers for the first 26 months (with a 1.5% BT fee) and a $0 annual fee for the first year.
HSBC Platinum Credit Card - Balance Transfer Offer
19.99% p.a.
0% p.a. for 22 months
$129 p.a.
Save with a 22-month balance transfer offer. Plus, lounge passes, travel insurance and an annual fee refund when you spend an eligible $6k/year.
Coles No Annual Fee Mastercard
19.99% p.a.
0% p.a. for 18 months with 1.5% balance transfer fee
$0 p.a.
Earn flybuys points for your spending and save with an ongoing $0 annual fee and 0% p.a. on balance transfers for 18 months.
St.George Vertigo Classic
13.99% p.a.
0% p.a. for 18 months
$55 p.a.
Get 0% p.a. on balance transfers for up to 18 months with no balance transfer fee. Plus, a low annual fee and purchase rate.
Bendigo Bank Low Rate Mastercard
0% for 15 months, reverts to 11.99% p.a.
11.99% p.a.
$45 p.a.
Enjoy a 0% p.a. interest rate on purchases for the first 15 months and a $150 Woolworths gift card when you spend $3,000 in the first 90 days.
Coles Low Rate Mastercard
12.99% p.a.
0% p.a. for 6 months
$58 p.a.
Save with a low purchase interest rate, earn flybuys points as you spend and get up to 55 days interest-free.
ANZ Frequent Flyer Black
20.24% p.a.
20.24% p.a.
$425 p.a.
Earn 100,000 bonus Qantas Points, 75 bonus Status Credits and $150 back when you spend $3,000 in the first 3 months with this premium card.
Coles Rewards Mastercard
19.99% p.a.
0% p.a. for 18 months with 1.5% balance transfer fee
$99 p.a.
Earn 2 flybuys points / $1 spent and save with a 0% balance transfer offer. Plus, 0% international transaction fees on purchases.
Bank of Melbourne Vertigo Classic
13.99% p.a.
0% p.a. for 18 months
$55 p.a.
Enjoy 0% p.a. interest for up to 18 months on balance transfers. Plus, a low annual fee and competitive purchase rate.
Westpac Low Rate Card
Finder Award
Westpac Low Rate Card
13.74% p.a.
0% p.a. for 16 months
$59 p.a.
A no frills, low rate card offering 0% p.a. interest on balance transfers for the first 16 months, with no balance transfer fee.
Skye Mastercard
23.99% p.a.
$49 p.a. annual fee for the first year ($99 p.a. thereafter)
Get up to $300 cashback, 110 days interest-free on everyday purchases, 0% foreign transaction fees and flexible instalment plan options.
Westpac Altitude Platinum Qantas
20.49% p.a.
6.99% p.a. for 12 months
$200 p.a.
Get 60,000 bonus Qantas Points when you spend $3,000 within 90 days.
St.George Vertigo Platinum
0% for 15 months, reverts to 12.99% p.a.
6.99% p.a. for 12 months
$49 p.a. annual fee for the first year ($99 p.a. thereafter)
Features an introductory 0% p.a. purchase rate, $49 first year annual fee and complimentary travel insurance covers.
ANZ Low Rate
12.49% p.a.
0% p.a. for 22 months with 1.5% balance transfer fee
$0 p.a. annual fee for the first year ($58 p.a. thereafter)
Save with 0% p.a on balance transfers for 22 months (with a 1.5% BT fee) and $0 first year annual fee. Plus a 12.49% p.a. purchase interest rate.
Virgin Money No Annual Fee Credit Card
18.99% p.a.
0% p.a. for 12 months
$0 p.a.
Offers 0% p.a. for 12 months on balance transfers and up to 55 days interest-free on purchases, all for a $0 annual fee.
Bank of Melbourne Amplify Card
19.74% p.a.
$79 p.a.
Earn your choice of uncapped Amplify or Qantas Points, plus enjoy up to 55 days interest-free on purchases.
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Credit Cards Comparison

Data indicated here is updated regularly
Name Product Purchase rate (p.a.) Balance transfer rate Annual fee
HSBC Platinum Credit Card - Balance Transfer Offer
19.99% p.a.
0% p.a. for 22 months
$129 p.a.
Save with a 22-month balance transfer offer. Plus, lounge passes, travel insurance and an annual fee refund when you spend an eligible $6k/year.
ANZ Low Rate
12.49% p.a.
0% p.a. for 22 months with 1.5% balance transfer fee
$0 p.a. annual fee for the first year ($58 p.a. thereafter)
Save with 0% p.a on balance transfers for 22 months (with a 1.5% BT fee) and $0 first year annual fee. Plus a 12.49% p.a. purchase interest rate.
Bankwest Zero Platinum Mastercard
17.99% p.a.
2.99% p.a. for 9 months
$0 p.a.
Offers a $0 annual fee, 0% foreign transaction fees, complimentary international travel insurance and a balance transfer offer.
ANZ Frequent Flyer Black
20.24% p.a.
20.24% p.a.
$425 p.a.
Earn 100,000 bonus Qantas Points, 75 bonus Status Credits and $150 back when you spend $3,000 in the first 3 months with this premium card.
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* The credit card offers compared on this page are chosen from a range of credit cards finder.com.au has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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