Debit cards can be an awesome tool to help you manage debt as it is hard to spend what you don’t have.
But I would argue not all purchases should be put on your debit card; your credit card can offer many more benefits and here is why:
1. Credit Cards can help build credit history. Suppose you want to purchase a house. Debit cards do not help you build a credit history or demonstrate how you manage your credit history. A positive payment history will go a long way in getting approved for a mortgage loan.
2. Credit Card Rewards Program. The credit crunch may have caused credit card companies to panic and cut back on rewards over the last few years but reward cards are on the comeback. Depending on the type of credit card you may be entitled to airline miles, travel, restaurant, gas, concert tickets and even cash back rewards.
3. Fraud Liability. While both debit and credit cards have fraud liability coverage, there are major differences in the coverage. With a debit card the responsibility is on the consumer to promptly report fraudulent activity. Under Regulation Z consumers using debit cards are liable for up to $50 if your bank is notified within 2 business days.
But liability increases to $500 if fraud is reported after 2 business days. Hopefully your bank does not strictly adhere to Regulation Z and offers exceptions to this rule. But it’s something to consider when using a debit card for major purchases.
Credit card fraud liability coverage is more favorable. Maximum liability for unauthorized use of your credit card is $50. But if you report your card lost or stolen before it is used the card issuer cannot hold you responsible for any unauthorized charges. Should the fraud involve use of credit card number, but not the card itself, there is no liability for unauthorized use.
4. Shopping Protection. A credit card can offer perks debit cards just cannot measure up to. For instance, Mastercard has an “Extended Warranty” program which doubles the original manufacturer’s or store warranty for up to a year. Mastercard also offers “Satisfaction Guarantee” where purchases can be returned or even refunded within 60 days of purchase if you become dissatisfied with a product and the retailer will not accept a return.
Both Visa and Mastercard have a Purchase Security or Warranty policy which means within 90 days from the date of a purchase, your items are eligible for replacement, repair, or reimbursement if damaged or stolen.
5. Discounts and promotions. Your monthly credit card statement may have a few treats inserted that debit cards do not offer. They may offer services to monitor your credit, identity theft protection, Fico scores, rental car discounts and even life insurance promotions.
These are just a few benefits of using a credit card over a debit card but there are many more. You may have no choice but to use a debit card if you do not have a credit card. If your credit history is less than stellar you may qualify for a credit card with easy approval criteria.
