Are Debit Cards Better?

Most of us know that we pretty much always have the option to use our debit cards, but we don't because we are used to writing out checks. While ATM cards, credit cards, and checks are self explanatory, a lot of people don't see a difference between credit and debit cards. Are debit cards better than credit cards? In this article, we'll list the advantages and disadvantages of each, plus the differences.

With a credit card, you are borrowing money from a bank each time you use it. The bank pays the vendor, and you pay the bank. By getting a credit card, you are entering into a legally binding agreement to pay the loan, plus any interest. In the case of a debit card, funds are taken straight from your bank account; like a check, but a lot faster. With debit cards, there's no need to carry checks or cash, and shopping is convenient. Debit cards are accepted worldwide and provide instant access to your funds. Debit and credit cards are used in much the same way; the store where you're making a purchase runs the card and you're usually given the choice to sign your receipt or enter your PIN. For a debit card, you aren't usually asked for photo ID.

Even after that explanation, you may not see the differences. Whether the credit or debit card is better depends on how and why you are using the card. The things that make debit cards so convenient also unfortunately make fraud easier; unless you report it quickly, having your debit card stolen can quickly leave you penniless. The companies that offer credit cards are under liability laws which limit the customer's liability to the first $50. If you notice odd charges on your statement, the company has to investigate as long as you notify them in writing within 60 days of the charge. In cases of debit card fraud, your liability is also $50 if you notify the bank within two days. After that, you may be liable for up to $500, or your entire account balance within two months.

Along with the more strict liability laws, credit cards offer more protection on consumer purchases. You should consider using your credit card for a fragile or very large purchase, or for items that will be shipped to your home. The credit card will give you added protection if your purchase is damaged or lost en route to your home. Another big advantage of using a credit card is that it allows you to build (or rebuild) your credit history. Using a credit card responsibly can help you improve your credit score, which will increase your chances of getting lower rates and fees on mortgages, auto loans and other loan types. While they are used in many of the same ways, debit and credit cards both have their advantages and disadvantages and only you can decide which is better.