Money Analysed

Why Credit Cards Trump Debit: The Top Reasons You Need to Know

Credit cards vs Debit cards: Which is the better option? When it comes to making purchases, you may be weighing the option of using credit cards versus debit cards.

Both have their benefits and drawbacks, and its important to understand these before deciding which is the better option. In this article, well be exploring the reasons why credit cards are generally the better choice compared to debit cards.

Well also discuss the drawbacks of using debit cards and why they may not be the best option for you.

Reasons why credit cards are better than Debit cards

1. Protection from fraud

One of the primary reasons why credit cards are better than debit cards is the protection they offer against fraud.

Credit card companies are required by law under the Fair Credit Billing Act and the Electronic Fund Transfer Act to offer liability protection to their cardholders. This means that if there are any unauthorized purchases made on your credit card, you wont be held responsible.

Instead, the credit card company will investigate and reverse the unauthorized charges. Similarly, if you are a victim of credit card fraud, you have zero liability as long as you report the fraud in a timely manner.

In contrast, debit card fraud can be much trickier to resolve. You may lose access to your cash while the dispute resolution process is ongoing, which can cause significant inconvenience.

2. Building credit score

Another significant benefit of using credit cards is that they can help you build your credit score over time.

The three major credit reporting agencies – Equifax, Experian, and TransUnion – all take your payment history into account when determining your credit score. By making timely payments on your credit card, you can establish a positive payment history, which can boost your credit score.

Additionally, the credit utilization ratio – the amount you owe on your credit card compared to your credit limit – is an important factor that affects your credit score. By keeping your credit utilization ratio below a certain limit, typically 30%, you can show that you are responsible with borrowing money.

However, be aware that closing your credit card or leaving it inactive for a long time can negatively impact your credit score. 3.

Reward programs

Many credit cards offer reward programs that allow you to earn cashback, travel points, and other perks. By using your credit card for everyday purchases, you can accumulate points that can be redeemed for discounts, merchandise, or even free travel.

Some credit cards also come with annual fees, but the rewards can be worth it. Debit cards do have some rewards programs, but they are typically much smaller and less lucrative than those offered by credit cards.

4. Purchase and price protections

Credit cards offer a range of purchase and price protections that can provide peace of mind when making larger purchases.

These include price protection, which ensures that you are refunded the difference in price if the item you purchased goes on sale shortly after you buy it. Similarly, purchase protection ensures that you are covered if the item you purchased is damaged, lost or stolen.

In contrast, debit cards do not offer these types of protections. 5.

Traveler perks

If you enjoy travelling, credit cards can offer a range of benefits. Some credit cards provide access to airport lounges, which can be a great way to avoid the crowds and relax before your flight.

Others offer travel insurance, which can be a valuable safety net if your trip is disrupted by weather, illness, or other unforeseen circumstances. Unfortunately, debit cards do not offer these types of perks.

6. Holds and deposits

When you use your debit card for certain purchases, such as renting a car or reserving a hotel room, there may be a hold placed on your account.

This means that the actual cash in your account will be inaccessible until the hold is released. With credit cards, on the other hand, there are no such holds.

Instead, a reserved credit line is used, which means you can still access your cash for other purchases.

Debit card protections

While debit cards can be a convenient way to make purchases, they come with significant drawbacks compared to credit cards. Here are some of the reasons why debit cards may not be the better option:

1.

Limited protection from fraud

As mentioned earlier, debit cards offer limited protection from fraud. If there are unauthorized purchases made on your debit card, you may be held liable until the dispute resolution process is completed.

This can take several days, during which you may not have access to your cash. 2.

Loss of money until dispute resolution

If you are a victim of fraudulent activity on your debit card, you may temporarily lose access to your cash until the dispute resolution process is completed. With credit cards, however, you can normally continue to make purchases while the investigation is ongoing.

3. No credit-building

Debit cards do not offer any opportunities to build your credit score.

This means that if you need to establish or improve your credit score, using a credit card may be a better option. 4.

Few reward programs

While some debit cards do offer rewards programs, they tend to be much less lucrative than those offered by credit cards. If you want to earn significant rewards for your spending, credit cards are typically the better option.

5. No purchase or price protections

As mentioned earlier, credit cards offer a range of protections for your purchases, including price protection and purchase protection.

Debit cards do not offer these protections. 6.

No traveler perks

If you enjoy travelling, using a debit card can limit your access to traveler perks, such as airport lounge access and travel insurance. 7.

Holds or deposits lock up actual cash

Finally, when a hold is placed on your debit card account, the actual cash in your account can become inaccessible until the hold is released. This can be a frustrating experience, especially if you need access to your cash for other purposes.

Conclusion

In conclusion, credit cards are generally the better option compared to debit cards. With their fraud protection, credit-building opportunities, reward programs, purchase and price protections, traveler perks, and accessibility, credit cards provide a range of benefits that debit cards do not offer.

However, its important to ensure that you use your credit card responsibly and dont accumulate too much debt. In conclusion, credit cards offer several benefits compared to debit cards, including protection from fraud, opportunities to build credit score, reward programs, purchase and price protections, traveler perks, and accessibility.

In contrast, debit cards have limited protection from fraud, no credit-building opportunities, few reward programs, no purchase or price protections, no traveler perks, and holds or deposits can lock up actual cash. It is crucial to choose the right type of card based on your needs and spending habits.

However, it’s essential to use credit cards responsibly and avoid accumulating too much debt. This article emphasizes the importance of understanding the differences between credit cards and debit cards, which can help you make more informed financial decisions.

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