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When You Should Opt for Credit Over Debit

Ashley Tate

You’ve probably heard numerous financial experts say that you should always opt for debit over credit. Their reason? By only making purchases with your debit card (or cash), you don’t spend more than what’s in your bank account.

While that’s true, if you’re financially responsible, using a credit card is often the wiser move. Here, the scenarios that you should choose credit over debit.

If you’re repairing your credit

Say you made a few money mistakes in college and now your credit score is lower than you’d like. Swiping your credit card can help your score inch upward, as long as your act responsibly. Debit card usage is not reported to the credit reporting agencies. Using your credit card—and paying your bill in full, on time each month—helps you establish good, responsible credit history, increasing your score.

If you’re stockpiling rewards

Many credit cards offer excellent rewards programs where you can redeem points for air travel, hotel rooms, household electronics and appliances, or even college savings. Charging many (or even all) of your purchases—including recurring household expenses—can be a savvy way to rack up your earnings.

If you’re making a large purchase

Some credit cards offer extended warranty protection beyond what’s provided by the manufacturer or the retailer. Use your credit card to purchase your new refrigerator or flat-screen television and you’ll automatically receive this coverage. (Check your card terms for specifics.)

If you’re going on vacation

It’s best to pay with a credit card when booking a hotel and renting a car. Why? Many hotels and rental companies only accept credit cards when making a reservation. If they do accept debit cards, they may put a hold of several hundred dollars as a deposit. Until the hold is processed, you won’t have access to that cash.

Secondly, using a credit card for travel-related purchases can give you instant access to perks, such as earning additional rewards points or complimentary car insurance for your rental car.

If you’re shopping online

When you buy something from a brick-and-mortar store, you leave the merchant with the item in hand. If you make a purchase online, you’re taking a bit of a risk since can’t examine the actual product until it arrives on your doorstep several days later. Using a credit card to shop online protects you in case something arrives damaged, was misrepresented in its listing, or if it gets lost in transit. (Negotiate with the merchant to settle the situation or ask your issuer to withhold payment to the retailer.) Otherwise, once you enter your debit card account information to make the purchase, the funds are immediately withdrawn from your bank account. Leaving you without cash and with little or no recourse.

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Published June 7, 2013
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