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Credit or debit? Both can be used to pay for purchases, but discover why one writer goes hard on credit cards.
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Not too long ago, I made a big change to my wallet: I stopped carrying a debit card. Instead, my only methods of payment that stay with me at all times are a few of my favorite credit cards. As a result, I no longer make purchases with a debit card and instead whip out a credit card to cover my tab at restaurants, grocery stores, gas stations, and beyond.
While this has added an extra step to my life when it’s time to pay bills (I have to take the time to log in and pay off the credit cards), it’s come with a few highly worthwhile benefits.
1. Security and purchase protections
Credit cards are a far more secure way to pay for purchases than debit cards. Your credit limit isn’t a reflection of your bank account the way a debit card is. Using your debit card means you (or anyone who may have access to your card, either physically or because they’ve stolen your account information) are withdrawing and spending directly from your checking account balance.
In addition, credit cards have very robust purchase protections and other policies designed to protect consumers. The best credit cards have $0 liability policies, so if someone gets access to your card information and makes unauthorized charges, you will not be responsible for paying them off.
With debit cards, your protection from unauthorized charges decreases over time. If you report fraud or the loss of your debit card to your bank within two days, you’re liable for up to $50 of unauthorized charges. But you’re liable for up to $500 if you delay reporting the problem. Wait 60 days or longer, and you could be facing the loss of all the money in your checking account.
2. Building credit
My credit score is over 800 these days, and I’m pleased as punch about that. It means that I qualify for better credit cards and higher credit limits, and every time I make a purchase on a credit card and pay it off, I’m signaling to my card issuers that I can be trusted with borrowed money.
Payment history reflects 35% of a FICO® Score, and it’s really no wonder that it’s the most important factor, percentage-wise. If you want to borrow money (be that in the form of a credit card, a personal loan, or anything else), the lender will want to know whether you’ll pay that money back.
A strong history of repaying money says just that, and translates to a higher credit score. This is especially crucial if you’re gearing up to borrow a large amount of money — I’m hoping to get a mortgage loan to buy a home next year, and using my credit cards for purchases and paying them off is helping ensure I can do just that.
3. Maximizing rewards and cash back
Credit cards give you the chance to earn rewards and cash back on your spending in a way that most debit cards simply don’t. Yes, rewards debit cards exist, but changing banks to one that offers a rewards debit card isn’t something that interests me right now. And I have created an excellent stable of credit cards that help me earn at least 1.5% cash back (and often more) on every purchase. For example, I have a grocery rewards credit card that’s paid me almost $270 back on grocery purchases since the start of 2023, which is absolutely staggering — it’s like getting more than two weeks’ worth of groceries for free.
In addition to cash back applied to my credit card, I can translate my rewards into money savings on travel, thanks to travel credit cards. I’ve had a few hotel stays in the last couple of months (and a few more upcoming) that were partially subsidized by credit card rewards points. And one of the roundtrip flights I booked for a vacation I’m taking with a partner next year was covered almost entirely by points. My debit cards sure don’t offer perks like these.
Should you opt for credit over debit?
I haven’t mentioned one particular pitfall of opting for credit over debit: It can be very easy to end up in debt. Remember, with a credit card, you’re not spending your own money directly the way you are with debit. If you spend down your checking account balance via your debit card, that’s it, you’re out of money.
But if you have a credit card, you’ll need to take care that you’re only charging what you can afford to pay off — and ideally, within the next month, so you don’t incur interest charges. If you are confident that you can stay out of trouble, using a credit card for all your purchases can be a great way to protect yourself, build credit, and earn rewards.
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