5 min read

Pros and cons of a credit card

Rounding it up

  • There are pros and cons to credit cards. There’s a need to weigh the pros against the cons to see if a credit card is right for you.

  • Pros include: building credit, convenience, rewards and incentives, freedom to shop online, and cover for emergencies.

  • Cons include: potentially harming credit, overspending and going into debt, high interest, and fees.

  • The key things to consider are responsible use and spending within your budget.

Credit cards are a convenient financial tool that give you the freedom to buy things now and pay them off later. With a credit card, you’re borrowing money on credit from a lender, with the agreement that you’ll pay it back.

On the positive side, credit cards can help you build your credit history, and – depending on the type of card – they can offer benefits like insurance, reward points, fraud protection, and cash rewards.

On the negative side, when credit cards aren’t used responsibly they can damage your credit history, can lead you into debt, and they can often end up costing you more in the long run.

As you can see at a glance, these plastic rectangles have both pros and cons. Whether you’re tapping them, swiping them, or typing their numbers into online shopping, you need to be aware of what you’re getting yourself into.

So, we’ve broken down the pros and cons of a credit card to help you decide if a credit card is right for you.

What are the pros and cons of a credit card?


  • Build credit

Your credit score is what lenders use to judge how safe you are to lend to. It’s recorded proof that when you borrow money, you pay it back in a timely manner. Building credit can help you when it comes time to secure a mortgage, a rental property, or a loan. Owning a credit card can help you build your credit score – as long as you use your card responsibly and make regular on-time repayments.

  • Rewards points

Many credit cards offer rewards just for using the card. Common rewards include airpoints, which earn credits that can be used to buy flight tickets, and cash back, meaning you earn money back when you spend with the credit card. If you use your credit card regularly, these points can build quickly, offering a decent bonus. Some cards offer additional rewards like airport lounge access, roadside assistance, and priority access to concerts and sports events.

  • Protection

Many credit cards offer peace of mind by protecting you in a couple of ways. With purchase protection, credit card companies reimburse you for damaged or stolen purchases. Collision protection provides insurance for rental cars. Fraud protection will reimburse you if your card is stolen or your account hacked. And some cards offer cell phone insurance too, if your phone is damaged or stolen.

  • Convenience

Having a credit card in your wallet means you always have access to money. Whenever you need to, you can purchase practically anything within your credit limit. With a credit card, like with a debit card, you can avoid carrying cash. While debit cards limit your spending to what’s in your account, credit cards give you access to additional funds from your lender – which you can pay back later.

  • Online shopping

Credit cards are the most helpful tool for online shopping. While you can sometimes use debit cards, gift cards, and other online payment options, these are not always accepted. Credit cards are readily available as the go-to form of online payments when shopping online. Credit cards allow you to make purchases worldwide.

  • Airlines, car rentals, hotels bookings

In most cases, it’s not possible to book an airline ticket, a rental car, or a hotel without providing a credit card – particularly when booking online. Airlines, car rentals, and hotels typically use your credit card details to hold a booking and to charge the cardholder any added expenses.

  • Cash advances

Cash advances can be useful for emergencies or unexpected expenses. You can take cash from an ATM using your credit card at any time – but be aware the interest rates are typically even higher than for purchases. And, unlike purchases, for which you have an interest-free grace period of 21+ days, interest on a cash advance begins the day you take out the cash.


  • Harm credit

While a credit card can help you build your credit history when used responsibly, the flipside is that you can actually harm your credit if you’re not using it well. If you borrow a lot and fail to make regular repayments on your card, your credit score will be harmed. Each month, lenders report credit activity to a credit bureau. A poor credit history will make it more difficult to secure future loans, mortgages, rental properties, and credit cards.

  • Get into debt

It’s so easy to spend with a credit card. In fact, it can be too easy. Because they offer convenience and easy access to money, credit card overspending can be a common problem. As long as you make regular repayments, you should be ok – but credit cards can lead to spiraling debt when used irresponsibly. Interest and late fees can rack up and get out of control. It’s important to be disciplined and only spend what you can repay each month.

  • Interest

Credit cards typically charge high interest rates on purchases (and even higher on cash advances). While purchases have an interest-free grace period for full repayment, once the grace period expires the interest rate kicks in. If you’re not paying off your purchases within the grace period (typically 3-6 weeks), you will end up paying more for the purchase than you would if you paid cash.

  • Fees

Credit cards have associated fees. There is usually an annual fee you pay just to own the card. Additionally, there are other fees you’ll incur if you’re not disciplined in your spending – such as cash advance fees, late fees, international transaction fees, and other penalty fees.

  • Fraud

Credit cards are a major target for fraudsters, scammers, and phishers. Keeping your credit card details secure is important – this includes only entering your card details into secure websites online, and not sharing your card details with potential scammers by phone or by email. While credit card companies usually offer fraud protection, it doesn’t mean fraud isn’t a major inconvenience.

  • Fine print

When you apply for a credit card, it can be confusing to understand all the requirements, terms and conditions. The fine print in credit card application documents is widely known for being complicated – this complexity can be off-putting, yet you need to read it to understand what you’re signing up for.

KOHO: A credit card alternative

There are other options to credit cards. Beyond the pros and cons of a traditional credit card, KOHO offers safe alternatives that might fit your financial plans. KOHO is a no-fee spending and savings account featuring a prepaid Mastercard with an integrated app. You can think of the KOHO prepaid Mastercard as a credit card alternative – it provides you with the convenience and accessibility of a credit card, but with fewer fees, lower risk, and no accrued interest. With a prepaid Mastercard you’re only spending your own money, so there’s no risk of going into debt or getting into financial trouble.

KOHO can also help you build credit. When you take out a Credit Building line of credit with KOHO and make repayments on time, you build your credit. KOHO can help you build your credit score in as little as six months.


When used responsibly, the pros of a credit card should usually outweigh the cons. As a financial tool, a credit card provides a convenient and secure way to pay for things, it offers added rewards and bonuses, protects your spending, builds credit, and gives you the most widely-accepted method to shop and book things online. However, you do need to be sensible about using a credit card. If you’re spending beyond your means and failing to make repayments, your credit card can harm your credit and become a financial burden.

Understanding the pros and cons of a credit will help you make an informed decision about whether or not adding a credit card is the right decision for your wallet.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!

Sam Boyer

Sam Boyer spends, invests, budgets, and writes. He enjoys writing about things he wishes he’d learned earlier — like spending, investing, and budgeting. A journalist originally from New Zealand, Sam has written extensively about consumer affairs, insurance, travel, health, and crime.