Identify any consequences (direct or indirect) to others when you use or benefit financially from owning a credit card?

Question

Identify any consequences (direct or indirect) to others when you use or benefit financially from owning a credit card? Identify two other individuals or groups and explain how/why for each.

Please answer in a well-formulated and clear, understandable manner. Thank you for helping me understand. :)

Answer 1

This is an interesting question, because consequences depend based on who you are and why you're using it.

Advantages to using a credit card:

1. Most cards have cashback, allowing you to save money assuming you pay off your card in full every month as to not accrue interest.
2. Using a credit card is basically an interest-free loan for a month assuming you pay it off in full each month. This means you can gain more interest on unspent cash in checking accounts (more commonly in savings accounts) each month, as payments are being deferred to a later date.
3. Using credit cards improves your credit score if you maintain good payment habits. Note: this is highly dependent on the outstanding balance you carry as well, as your credit score is defined by a multiple factors. Your credit score also usually drops with each credit card application, but will increase all else equal, the longer you have had accounts open and maintain on-time payments for the minimum amounts. Refer to additional professional resources to better gauge the various components of a credit score.
4. You increase personal security. Credit cards have fraud protection, allowing you to dispute transactions that were made fraudulently, either by someone stealing your card and using it at a physical location, or copying the information and entering it online or elsewhere.

Disadvantages:

1. If you have poor discipline, credit cards can become a financial nightmare as they are notorious for having the highest interest rates out of any bank product. Get yourself in significant debt, and the compounding effect of credit card debt will make it harder for you to get out of debt with interest compounding daily in most cases. Reports on the sources of revenues for most banks show that roughly one third of their revenues come explicitly from interest charges primarily from credit cards.
2. Variations in your amount of credit cards, and the amount you put on credit cards can negatively impact your credit score. These are usually offset by proven longer-term ability to pay off minimum amounts on time every month, but if you are relying on a higher credit score to buy a home or apply for a car loan, it may be helpful to wait to apply for a credit card unless absolutely necessary.
3. Merchant fees. Most people don't know where their cashback rewards comes from. It actually comes from the merchant you are buying things from. These fees can range anywhere from less than 1% of the transaction to 3% (sometimes more!). These fees take a huge chunk out of the margins of businesses. Note that for large businesses however, the cost of processing cash is also expensive due to transportation costs and the additional protection required to safeguard physical cash. Nonetheless, interchange fees charged by credit card networks in the US are some of the highest in the world accounting for nearly another third of bank's revenues, with network-specific fees and processing fees only adding to the headaches for businesses with high fees.
4. Sometimes you may not recognize a transaction that you made, and thus dispute the charge. If the product was bought in-store and was not used with the credit card's chip, but with the credit card's mag stripe, then the merchant who sold you the product is out the product, out the money, and in most cases is also charged fees by networks and processors per chargeback. It can be financially painful for merchants who are not EMV chip enabled to suffer a multitude of these "friendly fraud" disputes. On the flip side, if you do purchase a product in-store with an EMV chip, and unintentionally dispute your own purchase, the bank will then be liable for the loss. Either way, someone else pays for your mistake, unless there's hard evidence otherwise that you did in fact purchase the product. The process of proving that you made the transaction as well can also be costly and time-consuming for banks and businesses, so even in the best case, they may spend more resources than otherwise needed in order to deal with these disputes.
5. Studies have shown that consumers are much more likely to spend more money per transaction and on a monthly basis if they use credit cards as opposed to debit cards or cash. This can have negative implications on the consumer if the consumer struggles with self-control or financial discipline.