credit cards vs. debit cards

Will that be credit or debit?

Don't bother with such platitudes as, "whatever is easiest for you." Rather than handing over your ATM card, you're smarter to use your credit card. Here are five reasons why:

  1. You need credit anyway. If you're planning on a big ticket purchase--like a house--at some point in your life, you can benefit from active and well-managed credit with some historical oomph behind it. Though the U.S. Department of Housing and Urban Development says you don't need credit to qualify for an FHA loan, they also say that the higher your credit score, the greater the likelihood of you securing a loan.
  2. Choose the best credit card rewards program for you. You've probably heard this statistic from a 2006 study sponsored by GMAC Mortgage --41 percent of consumers don't use their credit card rewards. Be smart and choose the best credit card rewards program for you. If you love to travel, choose a card with frequent flyer rewards. Drive a lot? Choose a reward for gasoline purchases. Otherwise, choose a cash-back reward. If you're making the purchases anyway, take advantage of rewards you will use.
  3. Get great discounts and promotions. Reading the inserts that come with your monthly bill and fine print of your service agreements may reveal some added benefits that you most likely don't get with your bank's debit card, such as free FICO score and credit monitoring, rental car insurance and more.
  4. Ease your personal accounting. Using a credit card for purchases and then paying off the balance each month from one or more bank accounts is sometimes called the two-pass method of personal accounting. If you're making a healthy amount of interest on your bank account and you're not paying out interest on your credit cards, you could actually be earning money because you use your credit card.
  5. Cushion your pockets from fraud. When your debit card is the target of fraud, the stolen money comes directly out of your pocket until you start the fraud reporting process. When your credit card is compromised, you're cushioned against a direct hit.

Despite the dire warnings about credit card use, credit is only dangerous if you're not financially responsible. When it comes to credit versus debit, there are quite a few reasons why it's smarter to use credit.