The pros and cons of credit

The pros and cons of credit

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In schools, children learn how to read and write, about events in history and maybe even how to speak a different language. Some of these topics are things that they might never need again in their adult life and I think schools, especially for high school aged children, could do better with more practical subjects. It’s important for children to learn how to manage their finances, especially when it comes to the pros and cons of credit.

Pro: Building your credit score

When it comes to credit we all need to start somewhere. People talk about the magic credit score we should have and what’s good and bad. However, until you actually get some kind of credit you won’t have a credit score to build on.

It’s important that you don’t just get the first line of credit that you are offered as some options could have a really high interest rate. Instead, do some research and look into your options. Some lines of credit will let you do a check before even applying to see if you will be approved. If you try to apply for credit and get declined then this can affect your credit rating negatively.

Pro: Secure purchases

Most purchases made on a credit card benefit from enhanced purchase protection under the terms of the Consumer Credit Act and this could include holidays as well as other items purchased. For example, if you book a holiday with a credit card (minimum spend may apply) and the company goes bust, your money should be covered, even without travel insurance. Of course, having travel insurance is always a good idea as well and should really be purchased when you book your holiday.

Pro: Credit with rewards

Some credit cards come with additional rewards and it’s worth researching these to find one that best suits your needs. Some credit cards may offer cash back on purchases, points to collect to redeem for things such as money off or some might offer air miles for flights. These cards might be used on a regular basis to ensure rewards are earned but if you do this, make sure you pay off what you spend each month.

Con: High interest rates

Whether you’re new to credit, or have bad credit already, the chances are that you won’t be approved for a lot of credit out there. You might only be able to get a line of credit, like a loan or credit card, with a high interest rate. This means that you will end up paying back a lot more than you borrow initially and in turn, this makes it harder and longer to pay back. While this could seem like a quick fix you need to be aware of the long term consequences of this kind of credit.

Con: Built up debt

I’m not sure anyone really prepares you for what happens when you start to take out credit. It’s very easy after one purchase or application to keep going and going and going. In fact, I think it becomes a bit addictive. Unless you have a 0% interest rate the additional charges can soon add up on top of whatever you have borrowed. Debt can very quickly spiral out of control.

Con: Damaging your credit rating

If you find yourself to have maybe taken out too much credit and used up what you had available then you might be in a bit of a sticky situation with your finances. Once you start borrowing it’s hard to stop and also hard to know where your limits are. This could lead you to miss a payment, or maybe even more than one, resulting in even more charges for late fees etc. as well as damaging your credit rating. If this happens, it’s always important to contact the lender and explain your situation and ask for help. You can also learn more about debt consolidation and what options might be available to you.


The pros and cons of credit

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