Cash machines and debit cards make obtaining cash an easy task at any time of the day or night. The ability to use your debit card while grocery shopping, making online purchases, or reserving a hotel room may seem like an added bonus. However, if you have both a debit card and a credit card, you may want to reconsider the convenience of using your debit card. In many cases, reaching for your credit card is the wiser choice. This is especially true if you are able to avoid interest charges by paying off the balance each month.
6. Increased Liability If Fraud Occurs
One bonus of using your credit card is the fraud protection most credit card companies provide. The Fair Credit Billing Act states that you are responsible for a maximum of $50 if a thief makes fraudulent charges on your card. While your credit card company investigates the situation, you are not out any money. Some banks do provide protection if your card is used fraudulently. However, fraudulent charges made with your debit card instantly remove those funds from your bank account. You are out the money until the situation is resolved.
5. Your Debit Card Won’t Improve Your Credit Score
One benefit of using your credit card and paying off the balance each month is that it helps you to build up your credit score. A good credit score is critical when it comes time to apply for a mortgage or purchase a car. According to FICO, paying credit accounts on time, borrowing 30% or less of your available credit, and having a long credit history are all factors that improve your credit score. When you use your debit card, you are not borrowing any funds. Therefore, you will not affect your credit score.
4. Lack of Rewards for Use
Credit card companies want your business. Therefore, many companies offer a variety of incentives to entice you to use their card. Using your credit card may earn you cash back on purchases or allow you to earn points you can then use to purchase merchandise. For example, Discover It Cash Back has no annual fee and allows you to earn 1-5% cash back on your purchases. Furthermore, the Capital One Quicksilver card also has no annual fee and provides 1.5% cash back on all purchases. Meanwhile, using your debit card does not provide you with these rewards or incentives.
3. No Traveler’s Perks
Cashback rewards are not the only perks you can find from credit card companies. Many credit card companies also offer incentives in the form of airline miles. Some credit cards also provide you with access to exclusive airport lounges or furnish additional traveler’s insurance. Travel-centered credit cards, such as those offered by airlines, may also provide you with free checked baggage, accident insurance, or monetary travel credits. Using your debit card instead of your credit card will deprive you of the benefit of traveler’s perks.
2. Fewer Perks Such as Price Protection
Many credit card companies offer price protection for purchases you make using their card. Price protection means that if the price on an item you purchased drops within a published time period, your credit card company will refund you the difference. Your credit card company may also provide free purchase protection. In this case, if your eligible purchase is damaged, lost in the mail, or stolen within a certain time period, the credit card company will cover the loss. Furthermore, some credit cards offer extended warranties on purchases you make. These are benefits you will not receive with your debit card.
1. Holds on Funds Tie Up Your Bank Account
When reserving a rental car or hotel room, you may need to put down a deposit. This deposit is intended to cover any extra charges you may incur or damages you cause to property. When you use your debit card to cover these holds, that money immediately becomes inaccessible to you until the hold is released. Even after the hold is released, it can take several days for the money to be freed up in your bank account. When you use a credit card for these holds, you are not out any actual money while the hold is in place.