The benefits of a credit card (and some of the drawbacks)

8 benefits of using a credit card

1. 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.
2. Security. Using a credit card means it's not the money in your bank account that could be affected by security issues. All Visa, Mastercard and American Express cards have zero liability policies to help you get money back from fraudulent transactions.
3. Interest-free days. Most credit cards offer interest-free days on purchases when you pay your full balance by the due date on each statement. This gives you a way to avoid interest charges on your credit card, which also helps keep the costs down.
4. Building credit. Your credit card account details are added to your credit report. If you make payments on time and keep your account in good standing, it helps you build up a good credit score – which can increase your chance of approval for other loans. This sets credit cards apart from debit cards and buy now pay later services.
5. Earning points. Reward and frequent flyer credit cards give you a way to earn points on your everyday spending, including supermarket shopping, dining and travel bookings. You can redeem your points for rewards such as flights, hotel stays, gift cards, cashback on your account or even a coffee machine (depending on the rewards program). Some of these cards also come with big bonus points offers when you sign up.
6. Chargebacks – getting your money back. If you have problems with a business that won't give you a refund, you can request a chargeback through your credit card company.
7. 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 and airline lounge passes.
8. Consolidating and paying 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 drawbacks of using a credit card

1. Interest rates. If you carry a balance from month-to-month, you’ll pay interest charges. Interest rates for purchases typically range from around 8.99% p.a. to 26.99% p.a. This means you can end up paying hundreds or thousands of dollars in interest charges, and could take longer to repay what you owe.
2. Credit score impact. Missed credit card repayments are recorded on your credit report and can impact your chances of getting a loan down the track. If you're planning to apply for a home loan, your credit card limit also affects how much you can borrow and can impact your eligibility.
3. Credit card surcharges. Some businesses apply a surcharge when you pay by card – and it can be higher for credit cards than debit cards.
4. Annual fees. Unlike debit cards, most credit cards charge an annual account fee. These can cost as little as $25 per year or as much as $1,450 depending on the card 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.
5. Cash advance costs. If you use your credit card to withdraw cash from an ATM or spend on gambling or other "cash equivalent" transactions, you will get charged a cash advance fee worth around 3% of the total transaction amount. And you get charged interest right away (often at a higher rate).
6. Credit card fraud. 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.
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.

Our expert says: Are you ready for a credit card?

"Are you good at paying bills on time? Do your monitor your bank transactions carefully? Can you avoid the temptation of buying stuff you don't need just because you can? Congratulations! You're the kind of person who could benefit from having a credit card. But if you struggle to keep on top of bills, worry that you'll just let your credit card balance build up month after month, and have poor impulse control... you may want to stick to a debit card."

Richard Whitten

Money Editor

Should I use a credit card? What to look at first

When you’re thinking about getting a credit card, it’s important to consider the benefits and disadvantages they offer based on your own circumstances. This helps you decide if a card is right for you – and what type of card to choose.

Written by

Amy Bradney-George

Journalist

Amy is an experienced journalist with over 16 years of experience, contributing to major publications like Money Magazine, The Sydney Morning Herald, and ABC News Australia. Specialising in personal finance, she frequently appeared in media outlets and on radio. Amy holds a Bachelor of Arts in Journalism and Drama from Griffith University and earned RG146 certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, ensuring her expertise is grounded in current financial regulations. Amy was Finder's Senior Writer for Credit Cards from 2016 to 2024. See full bio

Amy's expertise

Amy has written 552 Finder guides across topics including:

• Credit cards
• Frequent flyer
• Credit score
• BNPL
• Money management
• Sustainability