Debit credit cards3/22/2023 When you use credit cards responsibly, they’re a smarter spending choice than a debit card - with the major caveat of avoiding credit card debt. If you want to start putting together a strategy to earn credit card rewards from your everyday spending, TPG’s beginner’s guide to earning points and miles is a great place to start. Debit cards, on the other hand, rarely give you anything in return for using them. Even though some cards carry an annual fee, the benefits almost always outweigh any additional cost. We love that you can earn rewards just by using credit cards for the purchases you were going to make anyway. Debit cards, on the other hand, don't help you improve your credit reports or scores whatsoever. We prefer credit cards to debit cards for another important reason: credit cards help you build a healthy credit profile. Related: Reasons why you shouldn’t use your debit card Credit cards help you build credit Not every credit card offers these great benefits, but they’re practically unheard of with debit cards. These perks might help you when an item you purchase breaks (or is lost) or when the price of an item you bought suddenly drops. Lastly, your credit card may also have added benefits, including purchase protection, extended warranties and price protection. The only type of dispute banks have to investigate under the EFTA is fraudulent charges on your debit card. If you’d paid for the same purchase with a debit card, your bank isn’t legally obligated to take or investigate a dispute. But if the merchant won’t help you (it happens), you could dispute the charge with your card issuer. Of course, you should try to work things out with the merchant first. Imagine you ordered a product but never received it. This protection is, once again, thanks to the FCBA. GETTY IMAGESĪnother credit card protection arises if there’s a problem with the goods or services you bought: your card issuer might help you get your money back. Also, the money in your bank account can be tied up while the bank investigates the fraud, which could be a serious problem if you have bills coming due in the meantime.Ĭredit cards will generally limit fraud to $50 whereas you’re liable for up to $500 on your debit card. However, your liability increases up to $500 if you don’t catch and report the problem within two business days. Ensure you report the unauthorized transaction within 60 days of your statement date and you’re covered.ĭebit cards are protected from fraudulent transactions, too, thanks to the Electronic Funds Transfer Act (EFTA). The Fair Credit Billing Act (FCBA) limits your liability for fraudulent transactions on your credit card to just $50 (and most major card issuers waive even this responsibility as a matter of policy). If you lose a card or it’s stolen and someone else starts charging on it, the federal government has your back. Putting points and miles aside for a moment - just for a moment - the best perk that comes from credit cards is the protection that those pieces of plastic (or metal) offer.įirst, credit cards protect you from liability for fraudulent transactions. Credit cards offer better fraud protection The Points Guy will not share or sell your email. I would like to subscribe to The Points Guy newsletters and special email promotions. It’s up to you whether to pay off your entire balance by the due date (strongly recommended) or to make at least the minimum payment toward the amount you owe. You can repeat this process repeatedly as long as your account is open and in good standing.Īs you use your credit card through a billing cycle, your charges are tallied up on your monthly statement. You can borrow money (up to your credit limit), pay it off and borrow again. Your credit card, on the other hand, works like a portable, flexible loan. If you try to use your debit card for a purchase that costs more money than you have deposited, your bank will generally decline the transaction. When you use your debit card to make a charge, the funds are withdrawn right away (or within a few days) from your account. The mechanics of credit and debit cardsĭebit cards are tied to your bank accounts. In this guide, we’ll break down how debit and credit cards work and the three reasons why we think it’s better to put your debit card away and pay with a credit card instead. Some financial pros are firmly in the pro-debit-card (or cash) camp, but here at TPG, we believe that credit cards are a much better choice for your spending. On the outside, credit cards and debit cards look a lot alike: Both have 15-16 digits, expiration dates and security codes.īut in reality, credit cards and debit cards are not the same, and there’s often debate in the financial world over which type of plastic is best for the consumer. Editor’s note: This is a recurring post, regularly updated with new information.
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