17 Jul 2018
#FinancialBytes: Why you should choose credit cards over debit cards
On the surface, both credit and debit cards are almost identical- both are plastic money, carry 16-digit card number, expiry date and PIN codes.
The difference lies in the way they function. With debit cards, you use your own funds available in your bank accounts, but with credit cards you borrow money from a credit card company.
Here, we decode why credit cards are better than debit cards.
Credit cards give you discounts, cashbacks, rewards; debit cards don't
Credit card companies thrive only if people borrow from them and thus to attract customers they offer a variety of discounts and cash-back options when you choose to make a payment using a credit card.
Credit cards also let you earn reward points on your transactions using which you can claim free gifts, service upgrades, etc.
Debit cards rarely provide such rewards and monetary-benefits.
Credit cards qualify for EMI options; debit cards do not
You can choose to make a payment in the form of Equated Monthly Instalments (EMIs) only using a credit card, as debit cards do not qualify for the EMI option.
But do remember that although EMIs help you to make a hefty payment in instalments, they are inclusive of an interest amount charged on the outstanding amount, according to your EMI tenure.
Credit cards do not make your money vulnerable to frauds
Since with debit cards you use your own money, the maximum spending limit is your total bank account balance, unlike credit cards which have statutory spending limits.
Thus if your debit card gets compromised, you risk losing all your bank account money. However, with a credit card you don't risk losing any of your money but the maximum bank money available as credit.
Credit cards help you build credit score; debit cards don't
When you apply for a loan, the first thing that a lender checks is your credit score. A credit score reflects your credit worthiness i.e. how good you are in paying back your credits taken in the form of loans or by using credit cards.
Thus, being a credit instrument, only a credit card helps you build your credit score and not a debit card.
Choose credit card if you can make timely bill payments
It's a fact that credit cards offer a plethora of benefits over debit cards. But it's also true that with them you borrow money which needs to be repaid by a certain date. If you falter, you need to pay late payment charges and accumulated interest. So, choose wisely!