3 Not-So-Obvious Reasons for Using Your Credit Card Instead of Your Debit Card

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Despite their having been around for quite a while, some people still get confused about the difference between a credit and debit card. Simply put, a debit card draws cash directly from your bank account when you make a purchase. In contrast, a credit card gives you access to a “line of credit” for your purchase from the credit card company. You then have to pay it back to them when your monthly statement comes in.

Given their nature of “buy first, pay later”, most people tend to believe that credit cards equal debt, and therefore prefer to use their debit cards instead. However, it’s not the credit cards that determine whether an individual runs into debt; it’s his spending habits that do. In fact, when used responsibly, credit cards can be extremely useful.

Here are three not-so-obvious benefits of using your credit card, which do not apply when you use your debit card.

1. Your purchases are protected

In most cases, credit cards come with safeguards designed to help protect you and your purchases. If an item that you have bought was stolen or damaged within 90 days of purchase, you could get a refund or replacement. Typically, the only requirement is that the full price of the item has to be charged to the credit card. Depending on the credit card issuer, the maximum payout per claim could be between S$500 and S$1,000.

Extended warranty is another feature on credit cards that allows individuals to extend the manufacturer’s warranty on eligible purchases. Purchases that do not have the manufacturer’s warranty would not be eligible for extended warranty. Individuals can stay protected under their credit card’s extended warranty feature when the original manufacturer’s warranty on their covered purchase expires.

Related: Guide to the Best Cashback Credit Cards + When to Use Which Cards

2. Build your credit history with on-time payments

Purchases made with a debit card use funds directly from your bank account, so it is essentially a “cash” transaction. These transactions do not show up on your credit report. Credit cards, on the other hand, help you build your credit history because they measure and track your credit and financial progress over time.

Paying your credit card balances in full every month helps you to maintain your credit score and build up a good credit history. This may not seem like a big deal when you have no major financial expenses lined up. However, when you need to borrow money from a bank for a home loan, car loan, or to plan your wedding, the banks will look at your credit history to check if you are a responsible borrower before lending you the money.

You should also check your credit report at least twice a year to ensure that the information reflected is updated, so you can avoid any troubles when you need to take a loan.

Related: [Infographic] Ultimate Guide to Choosing a Credit Card

3.  Fraud protection

Having heard stories of cardholders losing thousands of dollars in what they claimed were fraudulent transactions, banks are able to help by charging back the transaction to the merchant. A chargeback occurs when the credit card issuer initiates a reversal against the merchant for failure to fulfil the conditions of the transaction.

If there is a fraudulent transaction, individuals should also report the incident to the local police and contact the credit card issuer for assistance. They will take up the dispute with the Card Scheme and the merchant’s bank for a resolution.

While credit cards have all the above benefits – besides the obvious ones such as earning you cashback and airline miles – it’s important to recognise that using your “credit” and carrying debt are not the same thing. Be a responsible user and you can benefit from such financial discipline.

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