Advantages and disadvantaged of credit and debit cards

 

First, is it good to have any card at all, either debit or credit? The general rule is that only people who can handle cards with care and discipline, will use them to their advantage. 

Therefore, all advantages for both card types apply to more disciplined individuals, who don't usually suffer fits of impulse buys, who do care about paying bills on time and who don't forget or leave their cards around unattended. 

Advantages of credit cards (only if monthly balance payed in full every time)

1. Using credit card regularly builds your credit history
A long and good credit history will help you to qualify for car loans, mortgages or other forms of credit with better terms. 

Low credit utilization ratio is a major factor in calculation of the credit score. Using $500 of a $3,000 limit will give you better result than using $500 on a card with $1,000 limit. If you card is in good standing you can call and ask to increase your limit. Many times the issuers send emails with offers of limits increase.

2. Fraud protection
If your credit card is lost or stolen, you are not liable for unauthorized use if you report it promptly to the credit card issuer. 

3. Cash back or rewards
Many cards offer various percentages of cash back or rewards for use, depending on the program. 

4. Purchase protection
Some cards reimburse you for purchases which were lost in mail or stolen within a certain period of time.

5. Extended warranty protection
Some cards offer extended warranty on various products, depending on the program.  

Disadvantages of credit cards (for the less disciplined)

If you don't make your credit card payments on time:

1. You will be charged late fees

2. You will be charged high interest on outstanding debt

3. Your credit score will go down because of unpaid balances and of increasing debt-to-income ratio and bad credit utilization ratio

Credit card versus debit card

Ba aware that credit cads are not the same as debit cards. 

Credit cards accumulate the transactions for a month, at the end of which the statement is generated. Setting up an automating payment is a good option to make sure the bill is payed on time. 

Debit cards are connected directly to your checking account and the money is taken out within moments of the transaction. When the money is gone from the account it is very difficult to get it back. 

Only some debit cards have limited fraud protection and it is not as good as with the credit cards. 
Lately many issuers offer a lock/unlock feature using their phone app. It is safer to keep the debit card locked and only unlock it temporarily if you need to pull cash from the ATM.