Many consumers like to use debit cards to avoid getting into credit card debt, but using a debit card may not always be the best option.
Here are the reasons why credit cards are better than debit. Here are some pitfalls when you compare credit cards to debit cards.
1) Consumer Protection
Consumer protection is one reason you want to use a credit card instead of a debit card.
You have more recourse with a credit card than a debit card. The Fair Credit Billing Act protects credit card owners from damaged or lost goods. Their account will be immediately credited over disputed items. However, debit card holders do not get the same protection.
2) Fraud Protection
There are many ways a credit or debit card number can be stolen, although the methods can be identical, financial protection is not the same.
The only way a debit card holder will get all but $50 of any sort of fraudulent activity on their card is within the first 48 hours. A credit card holder does not have that sort of limit.
3) Car Rentals
Renting a car with a debit card can be tricky. For example, many rental agencies will require a credit card as a backup when a renter presents a debit card at the time of the car rental.
Often, a car rental company will also hold a few hundred dollars from the debit card as a security deposit.
4) Gas Station
Debit card owners could find that gas stations will hold a specific amount of money on your debit card when paying at the pump. That could be dramatically higher than your purchase. This hold may take up to five business days to be resolved. That means your money in your bank is not available to you.
5) Builds Credit
According to Lantern by SoFi, using a credit card and making timely payments will help you build Credit. However, you need a good credit score if you have financial goals, such as buying a new car or a home. Responsibly using a credit card will help you increase your credit score and help you achieve those dreams.
Many credit cards offer insurance with certain purchases. This can range from renting vehicles to extending the warranty on a household item. These are bonuses you do not get with a debit card.
Many credit cards offer rewards when you use them. This can range from an initial reward bonus when using a new credit card to points or cash back for using credit cards.
Some people will even have a separate credit card for their travel expenses that earn points for travel-related purchases, and another with cash back bonuses for their daily household use.
8) Financial Freedom
The money is taken out immediately when you use your debit card. When you use a credit card, you have a grace period. That allows you to purchase emergency items or when you want to take advantage of a good bargain.
Understanding the differences between debit and credit cards can help you make choices that will benefit your lifestyle and financial health.