What are the pros and cons of a credit card for a European?

Question

I have a bank account, with some savings. Enough to cover every expense I could have to face without delay.

I also have a debit card, which I use for my offline payments, a Paypal account for most of my online transactions, and a prepaid card in case of need for everything else.

I have no debt at the moment and I won't, for the foreseeable future, make any.

What advantages I would get from opening a credit card? What disadvantages?

At the moment, I value more knowing I don't owe money to anybody than knowing I am able to delay the actual payment to the next month.

Answer 1

For me, the overriding Pro is that the money doesn't leave my bank account until I want it to.

For example, my daughter was in school in China, and needed to quickly buy a ticket home, which she did. But the flight was cancelled even though the charge posted to the card. If this was a debit card, the money would be gone until the airline decided to refund the money. On a credit card, I just let it sit there, and only pay for the new flight (at double the cost, and flying the opposite way around the globe) that she purchased.

Similarly, in case of fraud, the money is out of your account until the bank refunds it. Not so with a credit card.

Rewards is a distant second reason to get one.

Answer 2

The main advantages and cons have already been mentioned in other answers, and so I won't repeat them, but let me touch on a few other lesser advantages of credit cards.

Credit cards protect against theft

If someone steals your credit card from you it's a nuisance, but only a nuisance. Credit card companies won't charge you for fraudulent purchases made on your card. By contrast if someone steals cash from you you're out of luck, and even a stolen debit card or check book can often leave you liable for any purchases made by the person that stole from you.

Credit cards protect you against bad businesses

If a company charges you for an item or service and doesn't deliver on what they promised you have little options if you pay with cash. While there are technically always legal options to seek compensation, in practice it's not worth the effort or cost to try to seek legal action against a company if they didn't ship your 50 dollar video game to you as promised; it's just easier to write off the money as a loss.

However, with credit cards you have a simple option, just tell your credit card company that you were cheated and they will give you the money back! Effectively they will refuse to actually pay the company you made the purchase from if they believe you have a legitimate claim that the company did not deliver what they had promised you. It helps that credit card companies give you the benefit of the doubt on such claims; for low-cost items they often take your word that the company did not properly deliver on your agreement without asking for any significant proof. I've only used this feature twice in my life, but it's still nice to know you have options if someone tries to cheat you when you buy with a credit card!

Credit cards are convenient

Paying with cash is slower than credit and requires you to carry around cash, or worse coins (which I refuse to ever deal with nowadays). Credit cards are just a more convenient way to make a purchase in most cases. Sure, a debit card can duplicate most of this convenience, but even with debit cards you usually need to enter a pin where for small purchases you can just swipe a credit card and go.

Credit cards can help you to keep track of your expenses

If you regularly pay everything with a credit card then each month you get a nice report of everywhere you spent money, and most credit card companies will even give useful tools for visualizing how that money was spent. This can be useful for tracking how you're spending money, determining if you're spending too much or what the biggest expenditures are etc; making it easier to generate and follow a budget. Though admittedly debit cards offer similar features.

The net result is that a credit card, when used right, is a significant improvement over other forms of payment. It's fast and easy while helping you to develop positive credit and giving you added protection and cash back (or other rewards) on the purchases. I've made hundreds of dollars just by using my credit card to make payments and taking the cash back.

Should you get a credit card?

The short answer to your question is that if you trust yourself to reliably pay your credit card off in full every month, and not increase your spending because you have a credit card, you absolutely should have a credit card. It provides a multitude of advantages over other methods of paying, and no negatives if used wisely. I try to pay everything with my credit card, to the point I'm annoyed when I am ever forced to use another form of payment!

Having said that, if you don't use a credit card responsibly, including paying it off in full every month, it can be very costly to have, as the interest charges and assorted fees add up very quickly! Credit cards can also increase the temptation of buying something you don't really need, or can't really afford to purchase at the moment, due to how convenient they are and how easy it is to swipe a card without thinking about how much something actually costs. A shockingly large number of individuals struggle with using credit cards responsibly; I have many good friends who have told me they will never get a credit card again because they have seen that they can't use one responsiblly.

If you have any doubt about your ability to use a credit card responsibly I would suggest erring on the side of not having a card and not risking temptation, as the harm of misusing a credit card is far larger than the rewards for responsibly using one. However, if you're confident in your own financial responsibility and ability to pay your bill in full at the end of every month then I strongly encourage you to get one as soon as possible and start reaping the many advantages!

Answer 3

Pros:

• A CC can be very convenient when travelling, especially to the US or other "credit card countries".
• A CC can be the only way to pay online for certain services, mainly from companies outside the EU.
• Your purchase might be better insured using your CC. (But chances are your bank or personal insurance already covers you, check first).

Cons:

• Small businesses in Europe might not accept your CC or resent you for using it because of the fees.
• The interest rates are ridiculous, if you need to borrow money do it any other way . CC debt is actually worse than overdrawing your account, which would be the typical European definition of "stupid debt".

And remember:

• Credit history is not a thing in Europe. Having a high credit limit is actually a negative when you apply for a mortgage or something like that. They treat it like potential debt (or in some cases as actual debt).
• Ease of use is reversed in Germany (or the Netherlands, or Austria etc). You are the exception paying with CC and a lot of the times it's a hassle, with waiters and cashiers being unfamiliar with your (specific) CC and the like.
• Always, always pay off CC debt immediately, before the interest sets in, see bullet 2 of cons.

A friend of mine once said this about owning a CC in Europe: "If you can afford it you don't need it, and if you need it you can't afford it". I think that sums it up nicely. I use mine for the first two mentioned pro's, and nothing else.

Answer 4

In the EU the main difference is that "some" debit card are debits. They can't be used for online payments.

For the EU - "credit history" don't exist. Some countries have private companies that gather info about "bad credit" and that's all. Some countries have general database of financial commitments that "credit lender" can check and counter with declared (or factual) earnings. Due to legislation in EU if you are in bad spot and you are given credit above your income the lender could be at fault (don't mistake lender as banks or credit card companies with usury ones).

For the EU:
PROS - when "impulse" buying you don't pay with your own money so there is no money taken from your account. I personally had a few "over estimation" (when paid with debit and returned he item) when I assumed I should have had more money in the account, paid for something and get overdraft.
Most, if not all, credit cards have grace period. So if you are savvy enough you can pay with CC while still having money in the account scoring extra saving.

Cons - said grace period. It's not counted from a payment date but "some" date. So with 30 day grace period you might not have 30 days but 20 or 17. Again, something I fallen victim too, learned how to milk the system. Realized it take too much time and attention than it's worth.
Charges and fees -some CC have hefty ones if you don't fill the requirments. Or if you don't apply to have them lifted. As an avid e-payment user I rarely use even my debit card so I would need to force myself to pay using CC to get away with required uses per month. Again, I would need to find a reason to use my CC to have a reason to have that CC in the first place.

If you have savings and can pay, what's called, urgent large spending (like new fridge or washing machine) without a problem then CC is not for you. You don't need it.

If you have a large purchase in mind (like a car or something, dozens of thousands money worth) and you have those saving in a time sensitive investment (like bonds) then apply for CC, use the grace period and earn money by having more income from investment than what you spend on paying off the CC.

Answer 5

One of the reasons I don't see listed here is that for certain types of transactions you may need to reserve a large amount of safety deposit, which is convenient with credit card and might be difficult or impossible with debit.

I was in the situation recently when I tried to rent a car for my vacation in UK. The calculated safety deposit the car company wanted to reserve was about twice my current account balance. I would have had either to borrow/transfer that money from other accounts and freeze it, or, if I had a credit card, I could have that money reserved and later returned, possibly not even paying the bank any fees if the reservation period was short enough.

Answer 6

Rental cars

In Germany, the only reason I ever use a credit card is to rent a car. Rental cars almost always require credit cards (I've rented cars in Iceland, Sweden, Germany, France, Spain, United States, and Canada). There is no other transaction I ever make for which I need a credit card, and indeed I almost never use a credit card for any other purpose.

In the past, I lived in Canada or the UK, where I had a credit card in order to "build my credit score". In Europe we're not so silly.

Answer 7

My view on credit cards (from Germany) mostly aligns with Douwe's answer.

Here are some additional points:

additional pros

(I don't see any additional pros, but I may say that the "convenient in foreign countries" may also have the flavor that withdrawing foreign currency cash via credit card can be the cheapest option to pay in non-EURO countries.
I have a credit card for exactly the reasons Douwe lists)

additional cons

• Many banks charge annual fees for credit card, but not for the normal debit cards that you automatically get with the checking account. Taken together with the limited usability of CCs in Germany, that's IMHO not worth while unless there are other reasons to have a CC.
  If you decide for one, it does make sense to shop for a CC that you can get without paying extra fees, and maybe even open another bank account just to get that card.

Additional thoughts

• Within what is called Kreditkarte in German, there is a whole range of mixes between the (US) concepts of credit, charge and debit cards. For the convenience in foreign (CC) countries, the important caracteristic is that for the seller it behaves like a credit card (not debit or prepaid). Whether the relationship between card holder and bank (card issuer) is actually more like credit, charge, debit or prepaid card doesn't matter in that respect and here in Germany these two aspects are only lightly coupled.

  E.g. There are credit cards that from the outside behave like a credit card but their internal operation mixes properties of credit, debit and ca: e.g. I put money onto my credit card like I'd do with a debit card. Any charges that take up more than the money I put there on bill date will also be automatically be withdrawn from the checking account the card is attached to (like charge card - so no credit card interest, but overdraft interest [Dispo/Überziehungszinsen]). Nevertheless, it also has a proper credit (incl. known pre-set limit).

  • This will also raise the available credit that the retailer/car rental/... sees, and this allows me to easily adjust "credit limit".
  • In the same (or opposite) way, the possible loss in case of stolen/... card (+ dispute of responsibility) can also be adjusted.
  • with this, the credit time by credit card is on average 1/2 month, whereas the payment period for invoices is usually 30 days.

• IMHO, if you need that half month grace period for paying, you probably shouldn't buy anyways. (For readers from other parts of the world, health care and similar emergency services for humans here work without paying upfront)

• When discussing the ease of reversing a credit card transaction, over here it is important to state compared to what other mode of payment.

  • It's much easier to reverse a wrong credit card transaction than a wrong wire transfer (Überweisung).
  • But returning a direct debit is even more easy.

• Possibility to withdraw cash varies by bank: for some the bank (debit) card is better, for others the credit card.

Answer 8

Here is my answer to the question that may prove unpopular:

Pros

• You can actually get some decent rewards by following the spending habits that your card direct you towards. For example there might be more rewards for spending at restaurants. Some card rewards are more valuable than others and while they are nice they are unlikely to make a material difference in your wealth/happiness.

• The float between when you purchase and when you have to pay for the items can be valuable. For example consider an online seller that purchases items at retail that he thinks he can sell online for a profit. If he buys the items and they don't sell right away, he could return those items without ever paying for them.

• There can be other perks offered, by the card, that is widely dependent upon your behavior. For example some cards offer free rental car insurance, while others offer no foreign exchange fees.

The bottom line is that there are some great sites that can assist you on your research which is the best card for you. There are plenty, just do a google search.

Cons

• Credit cards are one of the most highly marketed products in the world. Everything is designed to get the user to pay interest and fees to swell the profits of the issuing company. Frequently those who start out with a low interest credit card often end up with crippling credit card debt. It is very easy for people to fall into their trap. Sure some may be winning at the game, but the wide majority are losing. It takes a lot of will power and mental energy to not lose. Some of your friends, that brag about winning the credit card game, are trading some token rewards for much higher interests and fees and thereby losing. Often the reason why credit card companies direct one to certain transaction with the lure of more points is that their research has show leads to more profitability for the credit card companies. They are machines that are hard to beat.

• One side effect is you will spend more when not using credit. Research has shown that brain pain centers are not activated when one uses a credit card to pay. Why would restaurants and gas stations accept a fee for transactions that come with credit cards? The answer is that it leads to more profitability. It was not that long ago that most fast food restaurants did not accept credit. They started, and their profits soared and now encourage it. Not believing you will spend more using credit is self-deception. One way to combat this is to only use credit where you cannot spend more like paying the electric bill or putting gas in your car; but, not at a restaurant or a retailer.

• Credit score is a lie perpetuated by the credit industry to encourage more lending. Those that seek to "hack" their score, in the end, leads to them paying a lot of unnecessary interest to banks. They only legitimate thing to borrow for is owning a home or a business. The difference between high and good scores do not really help in those cases. The more important thing is the business case for those transactions. If they are legitimate then you will get the best rate.

• Using the credit card as an emergency fund is a popular but ill fated belief. So there is an emergency in your life. Perhaps you have to travel unexpectedly or you need to replace an item that is necessary to your life. Then shortly later you undergo a reduction in income. When using a credit card for the emergency, this will probably lead to credit card debt that may take a couple of weeks to build, but years to repay. If, instead, you use savings then it is far less painful.

I congratulate you on being deliberate in making this decision. Some become very emotionally attached to their credit card, especially their first one. Good work on having no debt. Keep up the good work!

Answer 9

One CON that I haven't seen directly addressed is that, in general, spending significantly increases when a credit card is used.

Depending on the study, this can range from a mere 12%-18% increase to a 100% increase.

There was one study on vending machines where someone using a card would spend several times more what someone paying with cash would spend.

So, in many cases, the bonus points, miles, or cash back rewards are outweighed by the overall increase in spending.

Answer 10

Free cash withdrawal worldwide was always the main reason for me. Not all credit cards offer that but some of them do and it is really convenient, zero transaction fees, zero conversion fees. Also, depending on the card again, the ability to combine it with Google/Apple pay takes convenience to another level (Pay with smartphone on contactless terminals, pretty much available everywhere nowadays). Finally, some rather expensive cards will give you unlimited access to airport lounges (like MasterCard Platin from DeutscheBank for only 200 Euros a year). They are already worth it after 7 entries to lounges and usually come with additional travel insurance and car rental insurance.

Answer 11

The pros are:

• You're not spending your money until the bill comes in
• If there is an issue (fraud, refund, stop-payment) then your money is not tied up; the bank's money is
• You can get cash-back for purchases which you were going to make anyways

The con is discipline, period.

Psychologically you need to be responsible enough to not fall for the classic advertised trap of:

Increase your purchasing power with a credit card.

If you wouldn't buy it in cash then do not buy it on a credit card, simple.

---

Side-notes:

My personal habit has been to have one and only one credit card inside my wallet which I use for 100% of my purchases.

Yes, I too sign up for new CCs just for the bonuses. I shift my bills to those CCs until I've earned the bonus and then never use them again.

Do NOT sign up for a CC just because it advertises some great cash-back rate on something you purchase infrequently. CC companies employ the "divide-and-conquer" rule meaning that the more CCs you use then the more likely you are to overspend and that's how they conquer your money.

Do NOT add authorized users for the sake of adding an authorized user. If they aren't paying your bill regularly then their name should be nowhere near your card. My wife and I even maintain our own cards which we are responsible for.

When traveling, especially abroad, consider equipping yourself with 2 or 3 cards just in case one of them has an issue or is lost/stolen. However, remember to practice discipline!

Answer 12

In the UK and I believe the rest of Europe you can make a claim against the credit card company as well as or instead of the company providing the goods or service. This is particularly useful when a company goes bankrupt between you paying for goods or services and receiving them.