Credit vs. Debit: Rating the Advantages and Disadvantages of Each

Written by: Valencia Higuera

Look inside anyone’s purse or wallet and you’ll probably find very little cash. You may hear the jingle of spare change, but instead of dollar bills, a large percentage of people will have a wallet filled with credit cards or a debit card.

With practically every establishment from gas stations to fast food restaurants now accepting plastic at the cash register, many consumers don’t think about cash. You can use a credit card or a debit card at soda machines, and even parking garages have a lane for people paying with plastic cards. Cash is a simple method of payment. But as it becomes more convenient to pay for items with a credit and debit card, you may lean in this direction.

But what’s the better option? There are advantages and disadvantages to both credit cards and debit cards. Learn the differences between the two and then decide which method works best for you.

Credit card pros:

  • Apply for a credit card and your credit card company will report your credit activity to the credit bureaus each month. Credit cards help build your credit history, thus allowing you to obtain loans and other financing.
  • A credit card in your name can provide emergency funds. Maybe you don’t have cash to pay for an auto repair or other unexpected expenses. With a credit card, you can meet immediate expenses today and repay your creditor over time.
  • If fraudulent activity occurs, your credit card company will credit your account and you’re not liable for unauthorized charges.

Credit card cons:

  • Unfortunately, not everyone will qualify for a credit card. A credit card company will check your credit history and evaluate your income to see if you’re eligible for an account. Plus, you have to be at least 18 years old to qualify for a credit card.
  • Paying for items on credit isn’t free, and your credit card company will charge interest – every month. Rates vary depending on your credit history, with some people paying as much as 20% in interest.

Debit card pros:

  • Debit cards do not require a credit history, and they are perfect for teenagers and people with poor credit. Obtain a bank debit card through your financial institution, or purchase a prepaid debit card from retail stores. If you don’t have a checking account, you can deposit your paycheck and other funds onto your prepaid debit card. Use your debit card to pay bills and other expenses.
  • Because a debit card isn’t a credit card, there are no monthly bills. Plus, there is no risk of high debt balances. Credit cards have credit limits. Debit cards are different and you can only spend what you deposit on the card.

Debit card cons:

  • Unfortunately, using a bank debit card or a prepaid debit card does not help your credit history. Since a creditor isn’t involved, your activity is not reported to the three major credit bureaus. If you’re looking to establish a credit history and build a strong credit score, apply for a credit card.

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Credit vs. Debit: Rating the Advantages and...

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