Pros, cons of using credit cards for everyday purchases

You can use credit cards for almost every purchase. But should you?

It’s not always an easy choice, and habits play a role. Your preference for using a debit card versus a credit card may have more to do with your personal spending patterns than with having weighed the pros and cons of either choice.

The disadvantages of credit card purchases only outweigh the advantages when you misuse your line of credit or don’t practice responsible payment habits. Pros and cons really come down to how much discipline you exercise over your everyday spending and whether or not you pay off your credit card balance every month to avoid interest or fees.

Pros of using a credit card for everyday purchases

• Earn as many rewards as you can by charging your card on everything — from a morning coffee to concert tickets.
• Build your credit score steadily by spending on small, everyday items and paying them off in full.
• Consumer protections, like purchase protection and extended warranty, come in handy when paying with a credit card.

Maximize rewards points

This may be the most common reason for using your credit card for everything from your morning latte to late-night shopping. The more purchases you put on your card, the faster rewards points add up.

“Credit card companies have ramped up reward programs to provide cardholders with extra incentives to swipe, including travel points, cash back and more. This is a great way to get something back for all the purchases you’re making,” said Andrea Woroch, a consumer and money-saving expert, in a previous interview.

Don’t forget to read your card’s policy and opt in to any bonus reward options when necessary.

“For example, my Bank of America card provides cash back for all purchases, and if I wait to redeem them until after I’ve collected over $300 in rewards, they give me an extra 25 percent back,” Woroch said.

Build your credit score

To build a great credit score, you need to demonstrate that you can use a credit card responsibly and build credit history. The most important factor in FICO’s credit scoring model is your payment history — in other words, your pattern of using credit and paying it back on time.

There’s no need to buy large items or go into credit card debt — charging inexpensive items you have to buy anyway works just fine. Your credit card balance doesn’t even need to be high for you to build credit. Charging just $100 a month and immediately paying it off with what’s in your checking account can improve your credit score.

Better purchase tracking

When you spend cash, you can end up with a pile of receipts to sort for recordkeeping and tax purposes. With credit card spending, it’s all on your monthly statements. (But you may still need your receipts for more detail.)

If you run a business or have a real estate rental, for example, simplify your recordkeeping by using a separate card for each purpose. Running all your expenses through your credit card account can help you keep your budget on track. It can even make it easier for couples to share expenses.

“For couples who don’t want to merge bank accounts, using a credit card for shared expenses is a great alternative. This way, you can still have your own money in separate accounts for personal splurges, but keep up with the purchases you split like groceries and cable,” Woroch said.

Many credit cards help you track your spending in certain categories through software offered by the issuers themselves. Or, you can download information from your financial accounts to a budget app such as Mint.

Consumer protections

You may not feel the need for return protection on that morning donut, let alone an extended warranty available from your credit card. But you should consider using a credit card that offers additional purchase protection benefits when something goes wrong.

Think about your chances of wanting to return something before you pay cash. If the answer is closer to “maybe” or “likely,” using a credit card would be easier for you to obtain your refund later on.

“Today’s retailers can often track purchases made with a card even if you don’t have the receipt, making returns much easier,” Woroch said. “If you pay with cash and make a return without a receipt, you could get stuck with store credit for the lowest current selling price of that item.”

Bonus cardholder benefits

One of the greatest advantages of credit cards is the bonus cardholder benefits that plenty of card issuers offer. For example, the Platinum Card® from American Express offers about $1,400 in statement credits every year and the Chase Sapphire Reserve card comes with a complimentary year of Lyft membership, one-year DashPass subscription, Global Entry or TSA PreCheck credit every four years and $300 annual travel credit.

You can’t get benefits like these if you just use a debit card or cash for such purchases. That’s a pretty enticing plus.

Cons of using a credit card for everyday purchases

• Swiping plastic can make it a bit too easy to overspend, and you may find yourself in debt sooner than you think.
• While credit cards make transactions easier and quicker, they’re also more susceptible to fraud.
• When carrying a balance on a credit card, interest and fees can catch up to you quickly if you don’t pay them off as soon as possible.

Danger of overspending

It’s easy to make an impulse purchase with a credit card. It’s practically painless (until the bill shows up, of course).

However, unless you’re checking your credit card account every day and immediately paying off the balance, you may suddenly find your credit card bill is larger than you can feasibly pay off in one payment. This can create a cycle of credit card debt, which is one of the riskiest disadvantages of credit cards.

Higher risk of fraud

A few tools exist to help prevent credit card fraud, such as your card’s CVV or CVC, but they’re not foolproof. Anytime you use your card, your information can be compromised. Some possible scenarios are at a gas station where a skimmer is installed or when someone looks over your shoulder during checkout.

While your card details can be compromised even when used at a major retailer you know and trust, think twice about paying with plastic if you have any doubts.

Interest charges and fees

If you overspend and carry a credit card balance from one month to the next, you will get charged interest, and the amount will be added to your credit card bill. Every billing cycle you don’t pay off your entire balance will add more interest.

Plus, some credit cards come with annual fees that are charged to your account every year. It may or may not be worth it to pay an annual fee, depending on the rewards and credits you receive with the card — and whether or not you’re using them. Pros and cons of credit cards with annual fees come down to your personal preference and spending habits.

Short-term credit impact

While one of the advantages of credit cards is the opportunity to build credit history and improve scores, it also comes with a short-term credit impact.

When you apply for a credit card, the card issuer will most likely perform a hard credit check, which is essentially a deep dive into your credit reports. This will temporarily affect your credit score, but only in the short term. After two years, a hard credit inquiry will fall off your report. Nevertheless, you should be careful how often you apply for new cards. Too many credit applications are considered a red flag to issuers and lenders.

Bottom line

Credit cards are helpful tools that can build credit, give you cash back for other purchases and provide consumer protections. But their cons can outweigh the pros if you’re not careful. Avoid the vicious cycle of credit card debt by spending within your budget and paying off your monthly credit card statement on time.