What is the advantage of a credit card?

Question

I have no financing problems and I always pay the full balance. But last month, I forgot to pay the bill and I got charges (overlimit fee + interests). So I was thinking of only using my debit card.
The reason I used my credit card is to build a good credit history. But is there any advantage of a credit card over a debit card?

Answer 1

When considering whether to use a credit card or a debit card, it has absolutely nothing to do with "building credit", contrary to popular belief.

You have to remember, if you already have the credit card, your credit is already being "built". The only thing you can do that will actually affect it is something that is negative. If you use the card and pay the balance off each month, you are at the peak level. You might hear from your credit card company about increasing your limit, as they want you to spend more money and end up carrying a balance, but once you have an open account, there's really not much you're doing to "build" anything.

The account being open, even if not in use, is the same as using it and paying it off each month in the eyes of the credit bureaus.

A debit card doesn't help your credit at all. It can hurt your credit, if you start bouncing payments, but it's not going to give your credit score any kind of boost.

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So, really, which one do you use? It depends. If you have a credit card that has some kind of rewards program, use it. Build up airline miles or cashback bonuses. If it's just a credit card with no real benefit, put it away and save it for emergencies only.

The process difference is that a debit card takes your money "right now". It is directly linked to your checking account and once the card is swiped & approved, that money is "spoken for". A credit card actually has to "float" for a couple days before it clears. The money is "reserved" off of your upper limit, but it doesn't actually charge to you until anywhere from 2 to 5 days (or longer) later.

You can actually see the difference if you use your checking account Check Card both ways. Buy something on debit and then buy something on credit (such as with a Visa Check Card). The debited transaction will post that same business day. The credited transaction will likely not post until a couple days later.

Answer 2

Well, credit cards build credit. Whether it is positive or negative is up to you and your spending/paying habits.

A debit card has absolutely nothing to do with credit. It is just directly linked to your bank account. The only reason it has a Visa or MasterCard logo on it is so that it can be accepted at most retailers. It has nothing to do with credit, (building, maintaining, or affecting it) in any way. You may sign for your purchase or enter your banking PIN. The difference between these methods is entirely up to your bank. Some charge fees for one way and not the other, some charge no fees, and some charge fees on both. (My bank does not charge me for using my debit card at all.)

The advantage of using a credit card is the classic, "buy now, pay later". When you've absolutely got to pay for something right away and you don't have the cash in your bank account, a credit card is great. (Provided that you will be able to pay your credit card.) It is also good if you pay it off regularly, because it builds positive credit that will enable you to buy a house or car with low interest rates, etc.

Think of a debit card as writing a check, without the hassle of carrying around a checkbook and holding up the check out line. :)

Answer 3

Some advantages of a credit card over a debit card; Let's say you spend $100.00 on something on the first day of your billing cycle. You actually don't spend this money for a month until you get your bill. Your $100.00 is still in your bank account earning interest for you. With a debit, they get their hot little hands on your money IMMEDIATELY. Credit cards are insured so that if they are lost or stolen, the max you will owe is $50.00. Debit cards are protected by a PIN, so, (the reasoning goes) they do not need to carry this protection, and they don't. If someone gets ahold of your debit and PIN you are liable for ALL the charges or deductions they incur. Since debits take out your money immediately, you have to be very active in monitoring your balance. It is easy to get overdrawn and incur service charges. Many credit cards come with perks, frequent flyer miles, rebates, etc. When you pay by the due date, a credit card history does go toward establishing a good credit rating. Debits don't. But they can negatively affect your rating should you not monitor your balance and become overdrawn. Most credit cards issue a year end summary of your spending with it broken down into about 20 different categories. This is a great tool to determine your spending habits/budget. Debit cards are a banks' dream come true. I don't have one, I don't want one.
There is a downside. If you are financially irresponsible and run up big credit card debt that you can't pay off every month you will pay HORRIBLE finance charges. The way to use your credit card is to pay it off each month, and let your credit rating reflect your good financial habits.
EDIT: Huh? The guy above me seems pretty knowledeable, but I don't understand his "posting" explanation. My credit card charges are not deducted from my account until I pay my bill at the end of the billing cycle. Businesses who accept a credit card do not also bill my account directly. If there are some who do this, I am not aware of it.

Answer 4

The only advantage I see with credit cards is that you will get to buy things even if you don't have available cash. Apart from that it is a lot of trouble if you don't pay on time. If you purchased something very expensive, it would be difficult for you to pay it at once. For sure, you will pay on installment basis. And if the installment term is longer then expect that the interest will also be mounting up. With debit card, you will only be able to use it when there is money in it. So the risk of becoming a delinquent payor is impossible.

Answer 5

No, there are no advantages to having a credit card. They are good to have in case of an emergency if you are out of cash, but other than that if you don't have the cash for something, you shouldn't buy it. I understand building up credit, but once you have established some good credit I say put the credit cards on the shelf.

I'm viewing a debit card as cash basically since it is directly linked to your bank account. As long as you have a decent bank, using your debit card is the same as cash in most instances.

Answer 6

The only advantage of a credit card over a debit card is if you don't have the money at the time of the purchase. If you are paying it off anyway, the debit card is best because there is no interest, late charges, or overextending yourself. I use my debit card in lieu of checks where I can, and I have no credit card.

Answer 7

Debit cards can charge you to withdraw. Like taking your bank card to a different ATM, the fees build up. With credit cards, youneed to find one that offers rewards. My parents buy everything on credit card but pay off the balance in full every month. That way, they get cash back and airline miles. As long as they pay it off before interest and finance charges, it's free stuff.

Answer 8

Just as you stated already, credit cards are advantageous in building a good credit history. Just remember to pay them on time, otherwise, well, you learned what can happen. If you already have good credit, apply for a card that has a low interest rate and no annual fee. It's also a safety net just in case you lose your job and are financially strapped until you find another one.

Answer 9

The clear advantage of having a credit card is the access to credit and/or cash. It is best to view credit cards as free (if the card doen't have fixed fees) insurance against losing purchasing power. In rare cases, it can even be used as a cheap source of credit without paying hidden or implicit charges.

Answer 10

you can build your credit and they can also give you a large cash advance. the building credit is a big part of it... which helps when you want a loan, or to buy a house or car. plus, if you're good with paying things off then it should be no problem for you.