When Americans pull out their wallets, they’re more likely to choose a debit card (44%) over a credit card (34%) to pay for everyday purchases, according to a NerdWallet survey. But should you?
Credit cards have several benefits that debit cards lack: They can help you build credit and earn cash back or travel rewards, while also providing more security than debit cards if your card is lost or stolen.
Still, not everyone should pick a credit card. Here are three cases to be made for paying with a credit card — and one reason why it may not be the best option.
1. Use a credit card to build credit
An excellent credit score can open up opportunities and save you money. Good credit can help you secure an apartment or a cell phone and get you better rates on loans, car insurance and credit cards. But the only way to build credit is to use credit, and paying with a credit card is an easy way to do that on a daily basis.
When you use and make payments on a credit card, your activity is reported to the credit bureaus. By keeping spending low in relation to a card’s credit limit and making all payments on time, you can improve your score and eventually have access to the best rates on other loans.
2. Use a credit card to earn rewards
Many credit cards offer travel or cash-back rewards on every dollar you spend. Some cards offer more rewards for certain purchases — like dining out, groceries, gas or travel spending — allowing you to rack up more rewards on regular spending.
Some of these cards may have annual fees, but often the rewards, benefits and perks can outweigh those fees. If you’re paying off the balance in full each month and not accruing interest, you’ll earn cash or points just with your normal spending. But if you carry a balance, your rewards will likely be outweighed by interest charges.
3. Use a credit card for better fraud protection
If your credit card is lost or stolen and you fall victim to fraud, generally the most you can be liable for is $50 under federal law — and thanks to zero-liability fraud policies offered by most credit card issuers, you may not owe anything.
But if a debit card goes missing or is misused, you could lose everything in your bank account if the loss isn’t reported within 60 days.
As well, your account may be tied up during the bank’s investigation, which could take weeks — and during that time, you might have problems paying bills, especially those linked to your account. In the case of credit card fraud, you might still face some autopay headaches, since you’ll have to wait for a new card. But your bank account balance won’t be affected.
When not to use a credit card: If you’ll be charged interest
If you don’t pay off your credit card balance each month and incur interest charges, it’s not worth it to use a credit card, regardless of its rewards or other benefits. That’s because most credit cards have double-digit annual percentage rates, which will eat away at any rewards you might earn.
Credit cards can be excellent financial tools, and if you pay them off in full each month, you should consider using them for everyday purchases and bills. But if you carry ongoing balances that accrue interest charges, then a debit card is the better choice.