Although credit cards and debit cards look similar, they use very different methods to pay for purchases. Swiping a credit card pays for your purchase with borrowed funds from the credit card company, which you must pay back in the future. Swiping a debit card, on the other hand, draws the money immediately from your checking account. There are several reasons you may want to choose a credit card over a debit card. We break down a few scenarios.
Increase Fraud Protection
Consumers who use credit cards have more protection against fraud and identity theft than those who use debit cards. If a debit card is stolen, your bank account can be drained right away and it can take a while to dispute the theft and get your money back. On the other hand, credit card users have zero liability and also get a wide range of protections for refunds one faulty products. Particularly when paired with identity theft services like Lifelock, credit cards are the way to go. If you want to learn more, Lifelock’s on Twitter and frequently posts helpful information about fraud protection.
Build Credit History
Debit card use doesn’t go on your credit report, whereas on-time credit card payments and a high percentage of available credit both help you build a positive credit history, says The Street. These factors improve your credit score and can help you get credit in the future at low interest rates. If you don’t have or use any credit cards, you will miss out on this easy boost to your credit score. That’s why it’s important to use and pay off your credit card on a regular basis.
Have Freedom to Pay Later
If you’re in a pinch and don’t have the money in your bank account for an emergency situation, a credit card can save you. Minimum payments are only a small percentage of your balance, so you can charge now and pay as you are able. This freedom can save you if you need to make emergency repairs to your home or car or need a little extra help with everyday expenses during a time between jobs.
Earn Better Rewards
Although some debit cards offer rewards programs, credit card rewards are typically better, according to ABC News. You can often get up to 5% cash back on specific categories of purchases on credit cards, earn rewards miles, or use store cards for deep discounts. Especially if you pay your credit card bill in full every month to avoid interest, using the card to get the rewards is a great strategy.
Avoid Holds on Bank Account Funds
When you’re buying gas, renting cars, or booking hotels, credit cards are much better to use than debit cards. This is because these types of businesses put a hold on your funds until they know the final amount you’ll spend. In the meantime, you can’t access this money, and it’s often a much higher amount than you are ultimately spending. If you use a debit card, this ties up money and you may accidentally overdraw your account.