Should you use a debit card or credit card on most of your transactions? It’s a question that you’ve needed to answer ever since cards replaced cash as the most common way to transact in the retail sphere. When debit cards first came out it was confusing for cashiers and consumers, and many people thought they were the same thing!
The similarities of debit and credit cards are quite different! The differences between credit and debit transactions are vastly different in how your credit is affected and how a consumer is protected from scams and fraud. Not to mention, getting credit card rewards! When you compare the differences the benefits of using a credit card win every time (providing you pay the charges off in full each month to avoid being charged interest.)
Think about this: For many consumers, debit cards are their go-to payment method, simply because these cards are easy to come by, and using them frees them of concerns about credit card debt. While it’s a good idea to steer clear of credit card debt, however, the right way to do it is to spend responsibly with your credit cards, rather than to avoid them.
If you’re torn between using debit cards and credit cards, here are 5 advantages to why Credit Cards are better.
Advantage #1: Debit Cards Won’t Build Your Credit Score; But Credit Cards Will
When you use a debit card to spend money that you already have, you don’t owe anyone anything. This means that there is no way for debit cards to help you enhance your credit score when you use them. Credit cards, on the other hand, are an excellent way to build credit. When you spend on your credit card, stay within a 30 percent utilization ratio, and pay your balance back in time each month, the activity builds up your credit score in ways that debit cards cannot. Each time you choose to use your debit card over your credit card, then, you forgo an opportunity to improve your credit score.
Related posts: My Story: How I Got A 720 Credit Score By The Age Of 21
Advantage #2: Credit Cards Have Rewards; Debit Cards Don’t
In the past, spending on debit cards came with rewards, just the way credit cards do today. The practice of rewarding consumers for debit card use came to an end, however, when legislation severely limited the kind of fees that banks could earn off debit card transactions. For this reason, it’s the rare debit card, today, that comes with rewards. Even when rewards are offered, those rewards rarely go over 1 percent.
Credit card rewards, on the other hand, can be generous. The cashback that you get on certain kinds of expenses can go up to 5 percent.
Advantage #3: Debit Cards Don’t Protect Your Purchases Like Credit Cards
Only rarely do debit cards offer any purchase protections, at all. Even when they do, the protections on offer tend to be much weaker, in general, than on credit cards. Credit cards come with extended warranties, return protection, protection against damage and theft, and many other kinds of purchase security. Only some of the top credit cards charge annual fees for the protections that they offer. Most credit cards are free.
Advantage #4: Credit Cards Have Better Fraud Protection Than Debit Cards
The law treats debit cards and credit cards very differently. If you have your credit card number stolen by a thief who then spends thousands of dollars on it, you can report the problem to the issuer, and have them limit your liability to $50. The Fair Credit Billing Act, that governs credit card issue and use, makes sure that you are protected.
Debit cards, on the other hand, are controlled by the Electronic Fund Transfer Act. If you’re lucky enough to notice fraudulent activity within two days, then, certainly, your liability is no more than $50. If you take more than two days to report fraudulent activity, however, your liability goes up to $500. The past 60 days, you get no protection, whatsoever.
With data breaches being as common as they are, it isn’t a wise move to use your debit card online, and leave yourself open to risk.
Advantage #5: Using Debit Cards Can Result In Cash Being Blocked Off
When you use your debit card to book a hotel room, management needs some kind of guarantee that you’ll be able to pay for the items that you help yourself to at the minibar. At a rental car desk, they need to know that if you return the car without filling it up, that you’ll have enough money in your account to cover it. For this reason, businesses often place a block on hundreds of dollars in your account until you pay the bill. If you need to spend your money in the meantime, you may find that you are unable to do it. Spending limits are usually high on credit cards, on the other hand. You won’t miss the few hundred dollars that these companies put a temporary hold on.
If you pull out your debit card each time you need to pay at a store, you should consider changing your habit. As long as you’re careful to not spend more on your credit card than you can afford to pay back each month, you’ll come out ahead with credit cards.
Final Thoughts: Debit vs. Credit Card Argument
At the end of the day it’s your choice as a consumer which one you want to use. I’ve listed several advantages to why credit cards are better than debit cards for various scenarios and I think the consumer protection is the biggest benefit overall. Now, it does not mean to go out and just charge up your credit cards. Just be aware of when it’s best to use a credit card or a debit card and be financially responsible!