Reasons to choose credit, not debit cards

Written by
Geoff Williams
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Debit cards are a perfectly useful and smart way to pay for goods and services, just as it’s sometimes nice to pay for something using actual cash, but there are many times when it’s simply smarter to use a credit card over a debit card.

Before we dive into the pros and cons of each type of plastic, let’s first go over some basics.

Credit cards vs. debit cards

What’s the difference between a debit card and a credit card?

If you use a debit card to pay for purchases, the money will immediately come directly out of your bank account. If you don’t have enough cash in your bank account, your card will likely be declined – or, depending on your account, you may be able to go in the negative to some degree, potentially with an overdraft fee. In short though, debit cards are similar to paying with cash. The card acts as cash, and your bank account like a wallet. Each time you swipe your card, cash is removed from your wallet – or in this case, bank account.  

Credit cards, on the other hand, allow you to make purchases up to your credit limit – not the limit in your bank account. You’ll then have a period of time, usually around one month, to pay off those purchases before interest charges kick in. If you don’t make your payment in full by your bill date, you’ll then be charged an APR on existing balances. If you pay your balance in full before the bill date, however, you can avoid paying interest charges on those purchases.

In short, if you pay for something with a debit card, the money is gone right away. If you pay for something with a credit card, you have some time before you actually need to pay for goods or services before interest charges kick in. You can carry the balance as long as you need to, but just be aware that you’ll face interest charges on revolving balances until they’re paid in full.

The prudent use of credit cards can help you tremendously when it comes to buying a home, buying a car or securing a bank loan. Debit cards, since they draw from existing funds in your bank account, are more for convenience than for establishing financial trust, and as such they aren’t nearly as powerful a financial tool as a credit card.

So is it better to use credit or debit? That depends on your point of view, but arguably, as long as you’re careful with how you use your credit cards, there are far more advantages to credit cards than debit cards. Let’s break these down.

Pros and cons of using credit cards

Let’s start with the pros…

Credit cards can help you improve your credit score. This is a huge reason to consider getting a credit card, if you don’t already have one. Making regular payments on a credit card is one of the best ways to help improve your credit score. Using your debit card is no different than writing a check or paying for something with cash, neither of which does anything for your credit since the money is already in your account.

In other words, when you pay for something with cash or a check, you get nothing in return. You’re being responsible, but the credit bureaus and future lenders will not see that.

If you have a limited credit history or a poor credit score, consider starting with a secured credit card. These cards require applicants to put down a deposit in order to establish a line of credit. Over time, responsible use of a secured credit card should build your credit in the same way that a traditional unsecured credit card would and, assuming your account remains in good standing, your security deposit will be fully refundable to you when it’s time to graduate to an unsecured credit card.

Credit cards offer generous rewards. Not all credit cards offer rewards (such as many secured credit cards), but if you have good credit, there should be many reward cards available to you. The best credit card rewards include frequent flyer miles, hotel credits and cash back programs. Earning rewards is simple. Simply use your card to make a purchase, and earn rewards for each (eligible) dollar you spend. Many rewards credit cards also come with unique credit card benefits like cell phone protection insurance, extended warranties and access to exclusive airport lounges.

Credit cards give you purchasing power. Credit cards allow you to make a large purchase, whether a major kitchen appliance or plane tickets for a big vacation, even if the funds designated for such purchases will be forthcoming in your next paycheck. In other words, credit cards can really help you with your cash flow.

Just remember, if you don’t pay off your purchases by your bill date, you could end up paying more than the initial cost of the items purchased. If you need more time, consider a card offering a 0% intro APR period. These cards offer an extended period, usually 12 months or more, where you won’t have to pay interest on purchases made, as long as they’re made in that promotional period. Balances not paid by the end of the promotional period will carry a regular APR though, so just be sure to pay balances off or down as much as possible before the introductory period expires.

Credit cards guarantee protection from fraud. Credit cards are federally mandated to limit your liability in case of fraud or identity theft. In a nutshell, the most you could lose with a credit card is $50, but you probably won’t even lose that as major credit card issuers tend to have policies offering $0 liability. That said, with a debit card, you’re pretty well protected, too. With a debit card, the main thing is that you want to quickly tell your bank that you had money stolen. If you have a checking account you rarely look at, and you learn, say, a month or two later that you had money taken, you could be liable for all of it. But if you report the missing money right away, you should get it back.

Credit cards offer purchase protection.  If you have an eligible item that is damaged or stolen, the credit card company or issuer may cover the loss. This is especially significant in the age of online shopping. By contacting the credit card company and disputing the charge, you can prompt an investigation that could potentially result in a refund.

Credit cards often allow you to extend your warranty. Many credit cards offer additional warranties or protection on consumer purchases. This can in some cases double the manufacturer’s warranty on a product or provide additional insurance on a car rental.

Credit cards make it easier to reserve a rental car. While many car rental companies will allow you to pay your bill with a debit card, some require a credit card to initiate and hold the rental. And some rental companies that will let you use a debit card to hold a car may place a hold on the card. That could typically freeze anywhere from $200 to $500 in your bank account. Funds held with a debit card are tied up, unlike a deposit held with a credit card.

Renting a car with a debit card has gotten easier in recent years, and so you may find that you have no problem whatsoever doing it. Just make sure you learn how the rental car handles debit card rentals before you rent a car.

Also, as mentioned above, many credit cards also offer credit card car rental insurance, which can save you money at the rental car counter.

Now that we’ve covered the main pros, let’s take a look at the cons of credit cards. There’s mainly just one, but it’s a big one…

You can go deep into debt if you use credit card irresponsibly. While credit cards can be amazing financial tools, they can also put you into financial ruin if you mismanage how you use them.

The big mistake many people make is charging too much – and then later realizing that they can’t make the full payment by the due date. So they pay, say, half of the credit card balance and figure that they’ll pay it all off the next month. Where things sometimes go wrong is when a cardholder continues to use the credit card, and so the next month, they not only half of the credit card bill from last month to pay, but also another high sum of money due.

If you end up carrying debt every month, the interest that you pay on that debt just continues to pile up, and you can start to find yourself owing your credit card issuer a decent amount of money pretty quick. Over time, you could find yourself deep in debt, and suddenly your credit card isn’t a helpful financial tool but a financial burden. And then suddenly debit cards start looking pretty good…

Pros and cons of using debit cards

The main advantages of a debit card are…

Debit cards are a good debt management tool. Experts tend to recommend that you shouldn’t use up more than 30% of your available credit, and some experts suggest spending no more than 10%. That’s because lenders don’t like to see you coming close to reaching your credit limit. Even if you pay the entire amount back every month without fail and never go over your limit, using up too much of your credit limit could cause your credit score to drop.

If you have already used up a good chunk of your credit card’s available credit limit, and you haven’t paid the debt off, reaching for your debit card instead could be a smart strategy to keeping your credit score in check.

Debit cards can help you spend wisely. Credit cards or spending with cash may also help you spend wisely. We all have our own ways of doing things, but if you’re somebody who doesn’t feel comfortable putting everything on a credit card since it is, after all, a loan of sorts, you may want to use your debit card for smaller purchases, like the soda you pick up at the convenience store.

Of course, the argument is that if you have a great cash back credit card, why not use it on pretty much everything, so you can earn rewards? But what if you don’t have a credit card that offers a lot of rewards? Or a high credit limit? You may feel that there are certain things you want to use a debit card to pay for – and other things that you’ll use for your credit card.

Some people also have trouble responsibly managing credit card spending as it feels like free money to some extent, but with a debit card, you know that you only have so much in your bank account, so this could encourage better spending habits.

There are some payments credit cards can’t make. You generally can’t use a credit card to pay off another loan, like a mortgage or student loans. So while you could bypass a debit card and pay loans through your checking account, you also may want to whip out the debit card and use that for convenience’s sake.

These are the biggest perks, so now, what about the cons?

Debit cards don’t offer any serious rewards. Some banks will give you cash back if you use your debit card (or credit card) to pay for certain purchases from retailers that the financial institution is partnering with. There are also a few banks that offer cash back rewards for debit cards if you, for instance, carry $1,500 in your checking account at all times. But, generally, as a rule, you don’t get much for using your debit card. You don’t typically get a lot of cash back — or miles or points that you can redeem for rewards. So that’s a huge disadvantage that debit cards have when competing against the many more unique credit card benefits that are out there.

Debit cards won’t help your credit score. If you’re lousy with credit cards, you could make the argument that debit cards do help your score. You’re not hurting your credit score by mismanaging debit cards. Fair point, but day after day, week after week, year after year, if you’re paying your bills on time with a debit card, and regularly making purchases, you aren’t helping your credit score much. If you were doing the exact same thing with a credit card, you’d likely have an exceptional credit score.

Debit cards don’t help you save much money. You can always make an argument that they can help you save money – we’ve already said that they can help you spend money wisely. But think about it this way; if using your credit cards offer you cash back or points or miles that you redeem for future purchases, you’re saving money. But you’re also saving money with other loans.

If you have an exceptional credit score, whenever you borrow money, like taking out a car loan, the terms should be far better than somebody with a lousy credit score. So debit cards, while you may feel that they can help you save money, and they very well may, they don’t do the job compared to what a credit card can.

So why use a credit card instead of a debit card? Because of things like cash back, points, miles and unique credit card benefits. Ultimately, if you pay them off every month, credit cards give you something back for your money. Even when you use them correctly, debit cards just take your money.

Geoff Williams
CardRatings Contributor

Geoff is a freelance journalist and has been since the 1990s. He specializes in personal finance and small business issues and has seen his work published with numerous news outlets including The Wall Street Journal,, Reuters, The Washington Post and Consumer Reports. He also...Read more

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