Learn the Difference Between Credit Cards and Debit Cards

Anti-fraud measures

In most circumstances, credit cards provide far greater safety than debit cards. As long as the consumer promptly notifies the loss or theft, their full culpability for purchases made after the card has vanished $50. The Electronic Fund Transfer Act provides debit cardholders with the same protection against loss or theft—but only if the loss or theft is reported within 48 hours of discovery. After that, the card user’s liability increases to $500 after 48 hours, and there is no limit after 60 days.

 

Other advantages of credit cards

Credit card customers can use the Fair Credit Billing Act to challenge fraudulent purchases or purchases of damaged or lost items during shipping. However, if the item was purchased with a debit card, the charge could not be reversed unless the retailer agreed. Furthermore, victims of debit card theft do not receive a refund until an investigation is concluded.

On the other hand, the credit card holder is not liable for the disputed charges; the money is often deducted immediately and returned only if the dispute is dropped or settled in favor of the retailer. Even though certain credit and debit card companies offer 0% liability protection to their users, the law is significantly more lenient for credit cardholders.

Many credit cards include a collision insurance waiver if you need to rent a car.

Even if you intend to use a debit card, many automobile rental companies want credit card information as a backup. A customer’s only option may be to enable the rental agency to store a few hundred dollars on a bank account debit card as a type of guarantee deposit.

The Drawbacks of Using Credit Cards

The primary disadvantages of using credit cards include debit, credit score consequences, and cost.

 

Spending can result in debt.

When you use a credit card to make a transaction, you spend the bank’s money, not your own. This money must be repaid, together with interest. Therefore, you must at the very least make the minimum amount due each month. Having huge balances on many cards might make it tough to keep up with monthly payments and put a burden on your finances.

Influence of credit score

Paying your bills on time and keeping your credit card balances low will improve your FICO scores. On the other hand, misusing credit cards can harm your credit history if you get into the pattern of paying late, maxing out one or more of your cards, closing older accounts, or applying for new credit too frequently.

Fees and interest

Because a credit card is a short-term loan, you’ll have to pay interest on everything you spend. Your annual percentage rate is calculated using the interest rate and the fees charged by the credit business (APR). The greater the APR on the card, the more it will cost you to carry a balance month after month.

You should know if your card has an annual fee, a foreign transaction cost, a balance transfer fee, a cash advance fee, a late payment fee, or a returned payment fee. As a general rule, the greater the annual fee, the better the credit card’s rewards program and the more perks it provides.