Consumer Comeback Blog

6 Reasons Why Credit Cards Will Always Beat Debit

Written by Jeffrey Trull

credit-cardWhat if I told you that you could earn free flights, get cash back every time you make a purchase, and save thousands on future loans, all for free and with little effort?

You can do all these things, as these are just a few of the benefits of using credit cards instead of debit.

If you’re debating between debit and credit, consider these reasons for why credit cards are superior.

Build Credit History

No matter how much you may be against taking on personal debt, the reality remains that credit is an important part of financial life for many Americans.

While a cash-only lifestyle might sound wonderfully simplistic, the fact remains that most Americans can’t pay for a home without a mortgage. Of course there are other places where credit comes into play, too, like borrowing money for a car or even renting an apartment.

The advantages of having great credit? Lower interest rates on loans and more flexibility in other financing. Whether you intend to use credit or not, it’s often beneficial to maintain an excellent credit score.

Using credit cards properly by making on-time payments and keeping balances low is one of the best ways to build solid credit. Unfortunately, debit cards won’t do a thing to help your credit score. If you abandon credit cards completely, you’ll risk having an incomplete credit report and score, which may make it impossible to get a loan down the line.

Free, Short-Term Loans

Credit cards are a form of financing just like other loans since you don’t actually pay until you get the bill later. This can be helpful to if you’re temporarily short on cash but know you’ll be able to pay the bill off completely within days or weeks. It’s essentially a zero-interest loan as long as you don’t run a balance month to month.

I’m hesitant to call this a real benefit – after all, it’s how so many people end up in credit card debt. But if you play the game right, you can use this feature of credit cards to your advantage.

A Little More Fraud Protection

The fraud benefits for credit cards over debit are often overstated, but there are still a few benefits over debit cards.

By law, credit cards have more built-in protection. If a charge shows up on your credit card, you’re typically limited in liability to $50.

It’s the same limit for debit cards – but the catch is you must report it within 2 days or your liability potentially increases to $500. After 60 days, you may be completely liable for unauthorized charges made on your debit card.

Easier Accounting

With credit cards, you don’t have to worry about over-drafting your bank account like you do with debit.

Over-drafting your account can be costly – Wells Fargo and US Bank charge $35 for each occurrence and many other banks charge similar amounts. Instead of worrying about this with debit, you’ll make payments once a month when you can be sure you have the money in your account.

You’ll also be able to review your bill before transferring money from your bank account to pay your balance. This is helpful since you’ll hopefully be able to detect fraud more easily and can avoid paying for charges that are unauthorized.

Less Hassle for Hotels and Car Rentals

Hotels and car rental companies prefer that you check in with a credit card during your stay or rental. While it’s true that most companies accept debit cards, you may be in for more of a hassle that if you just go with credit.

For example, Hertz accepts debit cards but will put a hold on your account that may add up to hundreds of dollars. This hold should be removed after the car is returned, but it’s possible it may stay on your card for up to two weeks.

Other rental companies have local restrictions that may or may not allow debit cards, so you won’t know until you attempt to book.

Hotels often have similar policies. While they may still accept debit, you’ll likely be facing another hold on your account, too.

Superior Rewards

When it comes to earning rewards from using plastic, it’s no contest – credit cards are better in almost every way.

Consumer Reports says that rewards available on credit cards are more common and more valuable. Credit cards offer benefits like frequent flyer miles, cash back rewards, and a wide range of other discounts can be found.

Many debit cards don’t offer rewards at all. You may even have to pay a fee to use one depending on the bank where you hold your account.

Bonus Features

There are a few more benefits to credit cards that don’t always come with debit cards.

Credit cards often offer an extended warranty on any purchases you make with that card. For example, according to MasterCard and depending on your card issuer, you can “double the original manufacturer’s or store brand warranty for up to one year when you pay with your eligible MasterCard card.”

You might also find that your credit card offers car rental insurance whereas your debit card does not. Virtually all brands of credit cards offer some sort of rental car insurance. Before making the choice, read the fine print to find out what benefits your credit and debit cards really offer.