When to Choose Credit over Debit

Before you pull out your debit card to make your next purchase, be aware that there are circumstances when it’s better to use your credit card.

How do you know which one to use? Take a look at our quick list of times when it can be beneficial to use your credit card over debit.

To avoid a fee

If you’re with a bank that will begin charging debit card fees in 2012, consider switching accounts. Although $5 per month doesn’t sound like much, that adds up to $60 a year. Plus, it could mean the dawn of even more fees for banking customers. If making the switch is too much of a hassle right now, consider using your credit card instead when you don’t have cash.

Tip: Make sure not to over-use your credit card, which can damage your credit score. A good rule of thumb is to keep your credit balances at 30% or less than your total credit limits.

For online purchases

Did you know that your credit card likely offers better protection against fraudulent charges than your debit card? Federal law limits your liability to a maximum of $50, regardless of the amount charged on your credit card. When it comes to your debit card, your liability is dependent on how long it takes you to report the fraud. If you catch it within two days, your maximum liability is capped at $50, the same as a credit card. But if it takes you longer, you could be liable for as much as $500 in fraudulent charges.

Tip: Stick to using your credit card for online purchase protection, especially with merchants you’ve never purchased from before. That way, if something goes awry with the purchase and you experience unauthorized charges, your liability will be capped at $50, no matter how quickly you catch it.

For the price protection and insurance

If you make a purchase with an eligible MasterCard only to find the item for a better price elsewhere, you’re protected. You have a 60-day window from the date of purchase to be reimbursed for the price difference. Additionally, some other credit card issuers offer to protect you if an item you purchased with credit was stolen or damaged within 90 days of purchase. Check with your credit card’s terms and conditions to find out if these services are available to you. Debit card purchases simply just aren’t as well-protected.

Tip: Price compare before you buy to avoid submitting the paperwork to be reimbursed for a price difference.

When you can get bonus rewards

Unless you’re with a bank or financial institution that offers debit card rewards, you won’t get any cash or miles benefit out of using your debit card. Instead, a good cash back or rewards card is the way to go. You might even get enough for a free trip to Paris.

Tip: If you want to research some good cash back credit cards, check out Credit karma’s reviews section to see how others have rated different credit cards.

Bottom Line

These are just a few guidelines to follow when deciding whether it’s more useful to use your credit over debit. Above all else, when you choose credit, make sure you handle it responsibly by paying off your balances by the end of the month and avoiding late or missed payments. You’ll avoid paying additional interest costs as well as late payment delinquencies on your credit report.

Bethy Hardeman is the social media maven at CreditKarma.com, a completely free credit management service that provides free credit scores, financial education and personalized savings recommendations. Credit Karma helps more than 3 million consumers realize the everyday cost savings of having a good credit score.