Do you know when to use your credit card or your debit card? Which one should you use for everyday purchases? What about expensive items? What about online shopping? In this post, we will talk about the key differences between paying with your credit card and paying with your debit card.
See our list of the best credit card bonuses here.
1. Credit Score: Your credit score plays an important role in your finances. Using credit cards can help you build or improve your credit. However, debit cards do not affect on your credit score at all.
Here are some tips to improve your credit score.
2. Rewards: Credit cards have sweet rewards if you know how to maximize them. Even if you go with a simple, flat rate, cashback card, you’ll be earning at least a little something for your purchases. With a debit card, you won’t earn anything back.
Here are the best reward credit cards.
3. No Cash Holds: Booking a hotel room or a rental car usually requires a big deposit. With a debit card, you’ll be locking up a big chunk of your money until after your travel is over. With a credit card, these holds show up as “pending”, so you still have access to your cash.
Tip: Use your credit card for hotel, car rental and party rental deposits.
4. Fraud Protection: Although debit and credit cards look similar, they have different rules about fraud protection. Here’s a look at the basic protections and consequences in case of debit card fraud compared to credit card fraud:
DEBIT CARD FRAUD
- You’re responsible for up to $50 of unauthorized transactions if you report the card as lost or stolen within 2 business days.
- If you didn’t report the card within 2 business days, you could lose up to $500 if someone uses your physical debit card without your permission. You must report the fraudulent charges within 60 days after your statement is mailed to you.
- If you didn’t report the fraud within the 60-day window, you face potential unlimited damage if someone uses your debit card without your permission.
CREDIT CARD FRAUD
- You are not responsible for unauthorized charges if your credit card number is stolen.
- You won’t be held liable for more than $50 in authorized charges if your physical card is stolen.
Tip: Use your credit card when you shop online and at restaurants, self-checkout lines and pay-at-the-pump terminals.
5. Travel Protection: There are plenty of things that can go wrong when you travel – missed flights, severe weather, lost baggage and much more. If you book your trip with a debit card, you’re pretty much on your own. But with a credit card, you’re most likely covered with travel protection insurance.
Tip: Use your credit card to purchase airline tickets and make hotel and car rental reservations.
6. Purchase Protection: Similarly, most credit cards offer purchase protections, while debit cards are lacking in this area. These protections may include extended warranty coverage, return protection and damage and theft coverage for recent purchases.
Tip: Use your credit card to purchase big-ticket items like furniture and appliances.
It is understandable that many people may not want to use a credit card because they don’t want to accumulate debt. However, debit cards are full of dangers that many aren’t aware of. The best piece of advice to avoid overspending would be to purchase things as you normally would with a debit card while also paying off your statement balance in full and on time.
For more credit card tips, click here.