While credit cards often get a bad rap due to irresponsible usage leading to debt, they can offer multiple advantages over debit cards for those who use them wisely. By examining the benefits and strategies of credit card usage, one can see that it comes out on top for various reasons.
Credit card applicants with good or excellent credit scores often have access to initial bonus opportunities, with bonuses worth $150 or more in exchange for spending a certain amount within the first few months the account is open. Debit cards do not offer these bonuses or any ongoing rewards.
Some credit cards give cash back on purchases, with rates going up to 6% on selected purchases. Certain credit cards allow holders to earn points on every dollar spent, with bonus points on spending in specific categories like restaurants or gasoline. Once a certain earnings threshold is reached, these points can be redeemed for travel, gift cards or merchandise.
Furthermore, co-branded cards linked to a hotel chain, clothing retailer or nonprofit organization allow regular spending to be leveraged for rewards and perks. Many airlines have partnership with credit card issuers, allowing cardholders to earn frequent flyer miles for every dollar spent on the card.
Credit cards also offer enhanced security. Fraudulent transactions on credit cards can be reported and not paid for while the card company resolves the issue. Credit card companies like Visa and Mastercard even offer zero liability coverage for unauthorized purchases.
Moreover, credit cards can make high-price item purchases safer as any payment disputes can be handled and resolved by the card issuer.
Making purchases with a credit card also means your money stays in your checking account until you settle your credit card bill, potentially allowing those with an interest-bearing checking accounts to earn money. The discipline of consistently using a credit card can also help users keep a closer eye on their bank account balance.
Credit cards also offer consumer protections such as rental car insurance, travel insurance and product warranties that exceed the manufacturer's warranty. They also make it easier to rent a car or book a hotel room. Merchants sometimes block out a certain amount of your available credit line, which would be inconvenient if a hold of several hundred dollars was put on your account instead.
Using a credit card responsibly can also help build credit score, as activity is reported to credit bureaus. Retailers accept credit cards as they make shopping easier, though some might offer discounts on cash payments, particularly for big-ticket items.
However, using a credit card may not be right for everyone, especially if it encourages overspending. Credit cards are best for those who can pay their bill punctually and in full every month. In such cases, the combination of rewards, consumer protection and cash-in-hand value can make credit card usage more advantageous than using debit cards, checks or cash.