Les Greco: When It Might Be Better to Use a Credit Card

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.

—
Related Articles at Personal Finance Blog by Money Ning: