404 When Does Using A Credit Card Make Sense? – Money In The 20s
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When Does Using A Credit Card Make Sense?

Making a purchase often feels more like taking a multiple-choice test than shopping. Paper or plastic? Debit or credit? While both questions seem pretty straightforward, the second one is actually kind of misleading.

When you hand over your debit card, you’re making a debit transaction, no matter how you answer the question. There really isn’t such a thing as using a debit card like a credit card and there are several situations when using a credit card definitely makes sense. If you need a credit card for the following situations, use the comparison tool at http://www.moneysupermarket.com/credit-cards/ to find a card that meets your needs.

Shopping Online

Because a debit card is directly linked to your bank account, shopping online with your debit card makes your bank account more vulnerable to hijackers. If a credit card number is stolen, you can simply refuse to pay for any fraudulent purchases made with the card.

If you used a debit card, however, you’re faced with a lower than expected bank account balance while you fight with your card company to get the stolen funds replaced. Anybody who has ever logged into their card account to see a zero balance can tell you that this distinction is very important.

Credit card companies typically have a consumer liability of $50, while some debit card companies make you obligated for the first $500 of fraudulent activity. Even those with lower liability amounts won’t cover any overdrawn fees or refused payments that might occur because you don’t have enough funds in your bank account.

 Purchasing Big-Ticket Items

If you are buying a big-ticket item, get some added protection by using your credit card. Many credit card companies offer you 90 days of replacement coverage if your purchase is stolen, lost or damaged. Some card companies also offer extended warranties or property insurance on your purchased item.

If you use a debit card to purchase a high-dollar item, the money is taken out of your bank account right away. If there’s a mistake with your purchase, your entire bank account can be instantly wiped out. Disputing merchants for incorrect orders is much easier if you use a credit card.

 Avoiding “Blocking” Surprises

Renting cars, buying gas or paying for hotel rooms with a debit card can seriously drain your bank account. That’s because those retailers often withdraw more funds than you’ve actually spent and will put the unused amount back at a later time. This practice is known as “blocking”.

Although the blocked funds aren’t transferred to the company, they aren’t available to you either. Instead, these blocked funds are in a financial limbo. Using your debit card on purchases that require a deposit can cause your account to run out of money and you to incur hefty overdraft fees.

Although retailers also block out a chunk of deposit funds on credit cards, this shouldn’t affect your spending ability unless you’re already bumping up against your credit limit. It makes more sense to use a credit card whenever a deposit is required, so you still have access to all of the funds in your bank account.

 Boosting Your Credit Score

If you’re looking to boost, build or rebuild your credit score, you must use a credit card. Debit card activity isn’t reported to the credit bureaus, so your responsible behavior won’t be noticed by anyone other than you. Credit card activity is reported to the credit bureaus, so making small charges and paying off the balance completely every month is a great way to boost your credit score.

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