Despite what your favorite financial “guru” may have told you about credit cards, in a head to head benefits comparison your credit cards will win nearly every time. Don’t believe me? Take a look below at the benefits that come standard with credit cards that you can’t take advantage of if you are using your debit card, prepaid card, or cash.
Capacity, or Buying Power
One of the first great benefits available to you when you use credit cards is that they offer a lot more buying power–sometimes as much as tens of thousands of dollars. The best part is that this buying power comes at little to no cost to you, as long you manage your credit card accounts properly and never carry a balance from month to month.
Debit cards can’t compare with the type of buying power credit cards have because most people don’t leave large amounts sitting around in their checking accounts just to cover large debit card purchases.
Another benefit of credit cards is their ability to build up your credit. Credit scoring models like FICO and VantageScore pay attention to how you well you manage your credit card accounts. In fact, when used properly credit cards can help you to build credit in just a few months.
You can even build credit using a credit card without taking on any debt or paying any interest. Just using your card for normal recurring purchases like gasoline, groceries, and gym memberships will help you build credit.
Yes, it is also possible that you can damage your credit if you fail to manage your credit cards properly, but the same can be said of every other loan type and debit cards as well. For example, if you use a debit card to overdraw your checking account (assuming you have overdraft protection) and fail to pay back the deficit then the bank may eventually close your account and report the negative outstanding balance on your consumer reports.
Both debit cards and credit cards have a potential downside when they are abused, but only credit cards have the upside of a credit building opportunity.
When it comes to consumer fraud protections there is absolutely no question that your money is safer when you use a credit card instead of your debit card. The Fair Credit Billing Act (FCBA) caps consumer liability for fraudulent credit card charges at a mere $50 and all four of the major credit card networks – VISA, MasterCard, Discover, and American Express – waive even that small amount as a matter of policy. That means that if someone racks up fraudulent charges on your account, you won’t be responsible for paying a dime of that back.
The Electronic Funds Transfer Act (EFTA) also protects you against charges on your debit card, but you could be stuck paying up to $500 if you don’t report the theft within 2 days.
Further, if your credit card is stolen it’s the bank’s money that’s at risk, not yours. If your debit card is stolen then your money is at risk. And while you’ll likely get back any stolen funds, it won’t be immediate. This can really screw up your finances when you expect the money to be there to cover any recurring charges that automatically come out of your account, like your phone bill or auto loan payment.
Credit cards outperform debit cards in the capacity department, the credit building department, and without question in the fraud liability department. As long as you can discipline yourself to spend responsibly then choosing credit cards over debit cards or cash is simply a no-brainer.