Using your debit card to make purchases is a great way to keep your budget intact. Since the funds come directly from your checking account, you can’t spend more than what’s available. However, that’s where the positives end. Here’s why you’re much better off leaving your debit card in your wallet.
Limited protection against fraudsters
Credit cards offer better protection against fraud. Thanks to the Fair Credit Billing Act, your liability is capped at $50 for unauthorized purchases. So, if someone steals your credit card and goes on a shopping spree, you won’t have much to lose. Plus, many credit cards come with a zero-fraud liability policy.
Things work differently when someone steals your debit card. Crooks can drain your account immediately and put you in a bind with your other creditors. The only way to get your money back is to act quickly. If reported within 2 business days, you’re only liable for $50 of unauthorized charges. Since not everyone monitors their bank accounts like they’re supposed to, it may take longer to notice something’s wrong. If you notify your bank within 59 days, your maximum liability is $500. Once you hit the 60-day mark, you’re responsible for whatever damage is done including any overdraft fees.
Debit cards don’t build credit
Owning a home is a big part of the American dream. However, you can’t get a reasonable interest on a mortgage without having decent credit. Using your debit card for online and in-store purchases doesn’t build credit history, only loans and credit cards can do that. With credit cards, your activity is reported to each of the credit bureaus on a monthly basis. This information is then used to calculate your FICO score. Keeping your balance low and paying it off by the due date can help build your credit rating.
Credit cards offer better rewards
When it comes to who has the better rewards, credit cards win by a landslide. Few issuers offer debit card reward programs anymore. Plus, you need to be more patient because it takes longer for your rewards to accumulate. With certain credit cards you can earn rewards each time you swipe. Once you have enough points or miles, you can redeem them for something you really want. For example, gift cards to your favorite stores, statement credits or hotel stays. Some cards also allow you to earn cash back on each purchase.