Debit vs. Credit: When Should You Use Each Card?

Allison Kade

“Debit or credit?”

You hear it from every cashier, but as with most things, there’s no one right answer. For some of us, in certain situations, credit might be better. For other people, in other situations, it might be debit.

So how are you supposed to know which option is right for you—and when? We’ll help you figure it out.

Use a Credit Card If . . .

1. You’re Trying to Build Credit The better your FICO credit score, the better your odds of getting a favorable interest rate on a future mortgage, car loan or other line of credit. And a big part of achieving a stellar credit score comes down to building a proper credit history.

“In order to qualify for a FICO score, you need to have some credit history that will allow the algorithm to assess the likelihood that you’ll repay various credit obligations over time,” says Frederic Huynh of FICO, the company that developed the popular credit scoring system. “Using a credit card as a means of repayment is one way to build up that history.”

Worried that you’ll overspend? According to Huynh, just using your credit card to buy something small each month, like a pack of gum—and then paying off that charge without delay—is enough to build a strong credit history.

RELATED: My Quest for the Perfect Credit Card Score

2. You Want to Accrue Rewards Although some debit cards do offer rewards, the perks offered through credit cards tend to be more enticing. “In general, debit cards aren’t so lucrative for banks, whereas the credit card market is hot right now, so there are bonuses and benefits,” explains Brian Kelly, who runs credit blog The Points Guy.

A debit card rewards program, for instance, might offer you small, spending-based contributions to your checking account for a short period of time—but credit card rewards may give you up to 3% cash back on certain types of purchases without a time limit.

RELATED: How I Pay for My Life With Credit Card Points

3. You’re an Avid Traveler While there are plenty of credit cards that reward travel through airline miles or points toward free hotel stays, debit cards centered around travel are few and far between. If you travel a ton and rank airline miles right up there with cash, it might pay to opt for a credit card that can grant you miles by the bucketful.

Some programs offer a mile for every dollar spent, while other cards offer 1.5 or even 2 miles per dollar. And that’s not to mention sign-up bonuses, which can grant you tens of thousands of miles early on if you put a certain amount on the card in the first few months. Plus, many credit cards offer other travel perks, such as car rental insurance (as long as you paid for the rental with your card), emergency assistance and even a 24-hour phone concierge service.

RELATED: The 5 Tricks of Travel Credit Cards

  • Leeza Nechay

    It’s articles like this that perpetuate the credit card myth. You’re effectively saying, buy a pack of gum using debt, so you can build up a history of how you use debt, in order to then have access to MORE debt. You know that, statistically, people don’t pay off their debt in full at one point for another & then are gouged by the lenders through fees and interest rates in the 20-30% range. How about people live below their means and never use nor need debt and build wealth by socking money away? Where are those articles?

    • sassysimo

      It would be great if everyone paid cash for everything…..including new cars and homes. However, that’s just not reality! This article outlines strategies to help the borrower maximize the opportunity to increase FICO and then pay lower interest rates on homes, cars, and insurance, to name a few. Buy a pack of gum, and PAY IT OFF. Pay off your credit cards every month to make these tricks work.

      • Leeza Nechay

        Of course it’s reality! Thousands of self-disciplined people do it all the time, myself included. If one needs to go into debt for a “new car” then that that person can’t actually afford that new car and should go for a reliable $3-4k used car and save up money for a better car over time (if one can afford $400+ car payments, one can similarly put that money aside, no?). Admittedly, the only debt that I understand would be a mortgage because of how expensive homes are and homes typically go up in value (barring these last few years), but only one with a hefty down payment and a 15 year term. There are mortgage companies out there that know how to properly underwrite a loan even without a FICO score, by looking at income, job stability, net worth, etc. Mortgage companies that have no idea how to properly underwrite loans, especially those that merely look at FICO scores, were a large part of the Great Recession. Why? By selling people the lie that “if you can make the payments, you can afford it.” The truth is, if you have or can save up the cash to buy something outright, THAT is when you know you can afford it. Making payments is not owning. Ask anyone who has been repo-ed, foreclosed on, or was forced to lose all their equity in a short sale.

        • Cookie

          I have to agree because I have been a victim of repo and foreclosure on and it is not a good feeling.

  • MichaelP

    Those that can live below their means (me) will reap the credit card rewards. Thank you to all those that carry a balance on their credit cards so the credit company can reward me :)

    • Leeza Nechay

      True. You are a small minority, unfortunately. Most people are like what that author of this article described: “Some consumers may lack the self-control to rein in spending, and can get themselves into trouble, racking up balances that are very difficult to pay off, or worse, start going delinquent…In this case, using credit cards can be a very bad thing for these people because it tarnishes their credit, has the ability to negatively impact their credit score, and can consequently limit access to credit going forward or increase the cost of that credit.”

  • Rick F.

    My debit card also has the Mastercard logo. i.e. I can chose how to use it. Debit or Credit. Actually most stores ask me how I’d like to pay. If I use my debit card under the credit option, do I accumulate/impact a credit history/FICO score?

    • Mark

      No, because it is still a debit card.

  • Mark

    Credit always beats debit.