Credit Cards

Why You Should Never Use A Debit Card

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 5 minute read

There are six good reasons to stop using your debit card and start using a credit card instead. In your wallet, do you have a debit card and a credit card? If you’ve ever used a credit or debit card to pay, you’ll know that the money you swipe originates from a variety of sources. There are other differences between debit and credit cards that aren’t only about where the money comes from. It’s possible you’re missing out on some crucial distinctions.

To summarize, a debit card or a credit card is superior. Using a credit card is nearly always preferable to using a debit card when it comes to swiping to pay.

Debit card fraud entails a loss of funds while the situation is rectified

You are protected from loss under the Fair Credit Billing Act and the Electronic Fund Transfer Act if your credit or debit card is lost or stolen and is used to make unlawful purchases. However, the type of protection you receive may vary.

According to the Fair Credit Billing Act, if someone uses your credit card without authorization, you are responsible for up to $50 in damages. If the actual card is not taken but the number is, you are completely immune from responsibility for unlawful use. However, many card firms go considerably beyond. Visa, Mastercard, Discover, and other card issuers all have zero-liability policies that safeguard you against credit card fraud losses.

Your damages are minimal when it comes to debit card fraud — but there are certain critical aspects to consider:

  • You’re only liable for $50 if you notify the authorities within two business days of learning of the theft or loss.
  • The maximum loss is $500 if you report the loss or theft more than two business days after learning about it but less than 60 calendar days after obtaining your monthly statement.
  • After 60 calendar days, you may lose all of the money that was fraudulently withdrawn from your account.

You may be fined by your bank if you fail to report the fraud quickly, even if your bank has a zero-liability policy. This is because the policies given by big credit card issuers tend to be more thorough.

You don’t have to pay the disputed amount of your credit card account until the dispute has been settled. There are certain exceptions, though, such as when your debit card is fraudulently used to withdraw money from your bank account.

The use of a debit card does not increase one’s credit score

When you use a credit card to make a purchase and then pay it off, Equifax, Experian, and TransUnion receive a report on your credit history. In order to have a great payment history, you must pay your bills on time every month. Another significant factor in determining your credit score is your credit usage ratio. Credit utilization is used in the credit score process. Your credit card utilization percentage, for example, is 20% if you have a $1,000 line of credit available and use $200 of it. A credit usage ratio of 30% or below can help you get a decent credit score.

Using a debit card doesn’t affect your credit score because you’re not taking out a loan. As a result, it will be more difficult for you to acquire a strong credit score. Due to lack of use, your credit card may be closed if you have one but choose to use your debit card instead. As a result, the closure of that account might have a negative impact on your overall credit usage percentage.

You won’t normally get any perks from using a debit card

Only a few debit cards provide rewards for spending, but they are few and far between. Paying using a credit card earns you higher points, whereas using a debit card just earns you lower benefits. If you’re looking for the finest credit cards for cash back, you can get up to 5% cashback on specific transactions, or you can discover great travel credit cards with benefits that let you get free flights or free hotel rooms.

Shoppers may take advantage of store coupons and rewards cards, which allow them to use their points to purchase products they would otherwise have to pay full price for. Check out the Wells Fargo Active Cash if you’re looking for a cashback credit card with no annual fee.

Debit cards do not provide any extra purchasing or pricing safeguards

Many credit cards provide additional benefits and safeguards that debit cards do not. Some cards, for instance, provide:

  • It is possible to get a refund if the price of an item reduces within a predetermined amount of time after you purchase it.
  • When anything you bought is damaged within a certain time frame after you acquired it, you may be eligible for a refund of the purchase price or compensation for the cost of having the item repaired or replaced.
  • The manufacturer’s warranty may be extended by many years with various credit cards, depending on the policy.
  • Return protection: Some credit cards may reimburse you if a retailer refuses to accept returns after you’ve made a purchase.
  • The no-annual-fee Chase Freedom Unlimited is a good option if you want purchase protection on your credit card.

Travellers who use debit cards may miss out on cardholder benefits

There are a number of credit cards that cater to the requirements of travelers, with entertaining rewards or crucial safeguards that may help you save money. Rewards for cardholders who travel frequently include the following:

  • Free food and drink are common at airport lounges, making them a convenient spot to relax after a long flight. While you’re waiting for your flight, take advantage of the several cards that get you access to these upscale lounges.
  • Getting a travel insurance policy. Travel-oriented credit cards may include accident insurance, trip cancellation coverage, compensation for lost or damaged luggage, and phone support if something goes wrong while you’re overseas.
  • The Chase Sapphire Preferred is our top selection for a travel credit card.

Debit card holds or deposits encumber your actual cash.

When you check-in or hire a car, hotels and car rental businesses may place a hold on your credit card. Companies usually do this if you do damage to the car or the accommodation, or if you incur unexpected expenditures.

If you used a debit card, this hold may render actual money in your bank unavailable. If you use a credit card, you just have a portion of your credit line reserved in case of a problem; no actual cash is kept hostage until you return the car or check out of the hotel.

Most folks would benefit from upgrading to a credit card.

You may find it difficult to switch to a credit card if you’ve been using a debit card for a long time. However, as the above list illustrates, there are several benefits to using a credit card instead of a debit card. Do your best to avoid overspending by keeping an eye on your credit card balance just as you would your debit card.

If you’re looking for a credit card, you’ll want to do your homework before signing up. Before deciding which credit cards to keep in your wallet, it is crucial to choose the ideal credit card for your scenario.

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