Advantages of Using Credit Cards Over Debit Cards

When you reach into your wallet to pay for a purchase, you might not put much thought into whether you’re using a debit card or a credit card.  For many consumers, the two have become interchangeable in many ways but there are key differences between credit cards and debit cards that are important to understand.  Credit cards have been around for over 50 years and have always been used more often than debit cards, which have been around for almost 40 years.  However, the gap between debit and credit card purchases narrows every year and it’s only a matter of time until more purchases are made with debit cards than credit cards.

The most important thing to understand as a consumer is that there are differences between credit and debit cards.  Each has its own set of pros and cons and most people should probably have access to at least one of each card.  Credit cards get a bad reputation because of undisciplined spending that can lead to credit card debt.  However, there are several advantages that come with using credit cards that are not available to debit card holders.  Here are a few of those advantages:

Ability to Build Credit: When you swipe a credit card, you’re instantly borrowing money from the issuer of that card.  Making payments against your balance, on time and for at least the minimum required amount, can enhance your track record as a responsible borrower and help you to gain approval for other borrowing needs you might have in the future.  Debit card spending has no impact on your credit score.

Consumer Protection: As crimes like credit card fraud and identity theft become more serious problems every year, knowing that protection is in place against these crimes should provide peace of mind for consumers.  Credit card customers enjoy the ability to contact their card issuer if the card is lost or stolen and to be fully reimbursed for fraudulent purchases.  Debit card purchases that are made without the consent of the account owner are subject to protection limits and the protection is eliminated if the fraud is not reported within a specified period of time.

Ability to Spend Money You Don’t Have: This can be a dangerous benefit but it’s a benefit nonetheless.  If you’re a few days from payday and need to make a purchase, a credit card makes it easy to get what you need.  If all you have is a debit card, the money has to be in your checking account in order for the purchase to be processed.  If you’re a few days away from getting paid, your options are to overdraw the account and incur massive fees or to obtain a payday or private loan which can be difficult, expensive, and time consuming.  Even if you don’t use a credit card regularly, you should have one available in case of an emergency need for money.

Rewards: More banks are offering reward programs tied to their debit cards than ever in an effort to gain new customers and increase card use, but if you read the fine print on many of these programs the only purchases that can lead to awards are the ones made when swiping your debit card as if it’s a credit card.  The reward programs with credit cards have changed as a result of the recent financial crisis but they remain very attractive compared to debit card reward programs.

Popularity: 1% [?]