When It Might Be Better to Use a Credit Card

by Miranda Marquit · 9 comments

There is a war raging with regard to which type of plastic to use: debit or credit. While many like cash, it can be inconvenient to carry around large amounts of cash, not to mention dangerous if you happen to have your wallet or purse stolen. Plastic on the other hand has a small footprint, while giving you a chance to protect your money if anything is ever lost.

For those who prefer cash, it seems as though debit is the obvious choice, since the money comes straight out of a checking account, and no interest is charged. It is also nice that you do not need a qualifying credit score to get a debit card. However, there are times when it might be better to use a credit card. Here are some considerations when it comes to debit vs. credit:

Liability Protection

Credit cards have a $50 limit for your liability on unauthorized purchases. Some debit cards do as well, but you need to read the fine print. Many debit cards require that you report the misuse within 48 hours to limit your liability to $50. Do so in 60 days, and your liability jumps to $500. After that, and it could be unlimited.

This means that it is important to be careful of where and when you use your debit card. It is a good idea to avoid using your debit card for online purchases, since the unscrupulous might get a hold of your number with relative ease. Additionally, if you are traveling, it might be better to bring your credit card and leave the debit card home in a safe place, just in case it becomes lost or stolen. A credit card can also have an edge when you are engaging in foreign travel, since it is more widely accepted. ATMs in other countries do not run through the same transaction networks as the ones in the United States, so getting cash with a debit card abroad is really a remote possibility.

Disputing Charges

If you are buying big ticket items, you want more protection than a debit card can provide. Let’s say that you are not satisfied with a purchase, and the merchant is causing problems with a return. With a credit card, you can dispute the charge. Debit card? Not so lucky. Additionally, many credit cards offer limited warranty protection on purchases you make using their cards, which is not something that comes with your debit card.

Credit Score

Using a debit card won’t help your credit scores. If you aren’t planning on making a large purchase with debt (home, car) anytime soon, it may not matter. However, if you are interested in boosting your credit score, using a credit card and paying off the balance regularly can help you improve that numerical value assigned to your financial situation. Using a debit card won’t help, since your purchases and payments are not reported to credit bureaus. However, it is worth noting that if you incur debit card fees or overdraw your checking account (overdraft protection is actually considered a loan at many institutions), some banks will report the action, causing damage to your credit score.

Bottom Line

It might be advantageous to responsibly use a credit card, as in the case of travel, large purchases and online shopping. Also, there are third-party payment and cash online services that can help you make purchases without having to disclose a bank account or debit card number. In the end though, how you pay for purchases is largely a matter of comfort to you.

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{ read the comments below or add one }

  • Even if you take the convenience and fraud protection out of the equation I would still try to use my credit card as much as possible just because I use a cash back card and just set it to be paid off in full every month from my checking account. No reason to pay 100% of the cost of an item when I only have to pay 97% to 99%.

  • Andrew @ Financial Services says:

    Though not a huge fan of credit card, I must say that it is pretty indispensable nowadays. Owning one of each is reasonable enough. I use a debit for shopping and credit for international and online purchases.

  • Writers Coin says:

    Charles nailed it: this debate is more about restraint than any specific feature on card has over another. I like paying all my bills and not worrying about overdrawing my account before my paycheck gets deposited (and the rewards points), but that’s just because I pay my card in full every month without even thinking about it. For those that struggle with controlling spending on plastic…time to break out the scissors…

  • Debit card is for those who cannot control their spending. It it limited by their own sources of fund and they don’t incur unnecessary debt. Credit card is for those who are disciplined to spend within their budget and pay promptly and fully.

  • Miranda Marquit says:

    Thanks for sharing. It is true that there are some benefits that come with credit cards. As long as you use them responsibly, they can be great financial tools.

  • Being able to have insurance and dispute charges are my top 2 most important reasons. The other is, I don’t want to get mugged with $500 bucks in my pocket and never get it back.

  • Sandy says:

    I love my American Express card before of that reason. The travel insurance is just great and whenever there’s a dispute, I can quickly resolve it without hassle.

    Debit cards may have the same thing but I’d be out whatever amount that’s already taken out until the situation is resolved. Not good IMO.

  • CreditShout says:

    Also when traveling some cards include travel insurance which means if you buy your tickets with your credit card and then have to cancel because of certain circumstances, you will be reimbursed for your trip. Rental car insurance is also provided by quite a few cards out there.

  • Craig says:

    Credit score is better, also there are times when it is just easier. For online purchases for example it is easier to use a debit card also if you just don’t have enough cash on you.

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