As debit card fees were rolled out during the fall, we wondered if Americans would start using their credit cards even more than before. (We also wondered if they would hurt their credit scores more than before.)
Then the fees were revoked, so we asked ourselves: Will debit cards become more popular than credit cards?
In fact, Visa reports an increase in credit card usage (and a decrease in debit card use) so far in the first quarter. While you wouldn't want to reach for your credit card for every purchase—and you definitely don't want to rack up excessive credit card debt—there are certain cases in which using your credit card is the smarter payment choice.
Check out the seven situations in which you definitely want to use your credit card:
For Car Rentals
Most rental car agencies won’t even take your debit card. But the few that do may perform a credit check in order to make sure you’re a reliable consumer, which can cause your credit score to dip a few points due to the hard inquiry. If you want to use your debit card for a car rental, make sure to ask first if the rental agency requires a credit check. If it does, pay with your credit card instead.
At the Supermarket
There's a new identity theft practice: skimming debit card purchases at the grocery store. Essentially, a thief will install a small electronic device in a debit card swiping system, capturing your debit card number and PIN. As soon as the thief has the information, he can begin depleting your bank account. If you use a credit card instead, you’ll have an easier time recuperating your losses if your identity is stolen, since credit cards offer better fraud liability protection.
Checking Into a Hotel Room
When the front-desk hotel clerk asks for your credit or debit card when you check in, he’s not just verifying your identity; he may be putting a hold on your account as a type of security deposit. This is to ensure that, at the end of your stay, you have enough funds to cover the hotel stay. If the hold goes on your debit card, it will tie up the funds in your bank account. Choose instead to give him a spare credit card.
At Wifi Hotspots
You’ve heard it before, but we'll say it again: Unsecured online purchases make your debit card susceptible to theft. Your credit card likely offers better protection against fraudulent purchases than your debit card. If you’re online shopping while using an unsecured wireless Internet connection, such as at a coffee shop, it’s best to wait till you have a secure, trusted hookup. If you can’t wait, use your credit card for the purchase.
For Delivered Items
Say you purchase a couch that will be delivered to your home in a few weeks. You eagerly await your new piece of furniture, but it never comes. If you paid with your credit card, you're protected: A federal law called the Fair Credit Billing Act allows consumers to dispute various credit billing errors, including goods not delivered as agreed upon or damaged upon delivery. Debit cards and checks are not covered under this law.
At the Pump
Gas stations often don’t encrypt your debit card PIN. If a thief can get into the pump, he can easily install a card-skimming device to collect your information. When you pull up to a gas station, consider using your credit card instead, which will make it easier to catch fraudulent charges and recoup losses. Also, avoid the pumps closest to the road; these lanes are most often targeted for skimming since they’re farthest from the station clerk’s view.
How many recurring payment memberships do you have? One? Five? It can be easy to lose track. It's especially dangerous, though, if your recurring payments are put on your debit card; if your balance gets low, you'll have to pay overdraft fees. Unless you keep a generous cash buffer in your bank account, it’s a good idea to put recurring payments on your credit card instead.
The Bottom Line
Credit cards aren’t just convenient; they can also offer great protection. But the benefits of proper credit card use can be clouded if you don't pay off your balance each month and you end up paying a lot in interest. At the very least, keep up with minimum monthly payments. Smart credit card use will help you improve your credit score ... which can help save you a ton of money in the long run.
Credit Karma™ is a completely free credit management service that provides free credit scores, credit monitoring, financial education, and personalized savings recommendations. We help more than 5 million consumers realize the everyday cost savings of having a good credit score.
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