Finance really boils down to the balance of income and expenses. This can be applied to a private individual and to organizations alike. Debit and credit cards represent two faces of the expenditure coin of a person. Just like incomes and expenses are to be balanced to have a healthy finance, so should you wisely choose between debit and credit cards for different occasions?
Understanding the Basics
Before you choose which card you must have and use, know the difference between these two cards. Both are issued by banks and they both will have an account to which they are linked. But this is where the similarities end. When you carry out a transaction using a debit card, you are using the monies already available in your bank account. The monies used are out of your current and accumulated balances held in the account. In a credit card, however, you are not using any saved monies but are creating and/or adding to a line of credit that has been given to you by the bank. Usage of credit cards adds to your debt commitments to a bank whereas a debit card does not. Now that you know the difference, here are some usages tips that you must keep in mind to wisely use both and maintain a healthy credit score at the same time.
Credit score conscious – Using a credit card definitely makes a difference to your credit score because you are increasing or decreasing the balance of a line of credit or in simple words, a debt. Using a debit card makes no difference whatsoever to your credit score. Make sure you use about 30-40% of your credit limit and not more, unless it is an emergency, to favourably affect your credit score.
Fraudulent transactions – Usage of credit cards is strictly monitored by banks. They will immediately block your card if they observe an unusual transaction or will call you for verification. This, thereby, reduces your chances of fraud liability on credit cards. Debit cards, however, have minimal safety facilities, including a PIN, but don’t have any suspicious activity trigger thus putting your entire linked account balance at risk.
Unsatisfactory purchases or services – If you are not happy with a product or with a service provided, all the store/organization has to do is reverse the transaction by swiping your credit card again in the machine. So, if you know you have to make a large amount transaction and are unsure of what the results may be, use your credit card and then reduce the balance on it by making a large payment on the card. Regular purchases can still be made using debit cards as you would know the establishment from which you are making the purchase.
Add-on benefits – Credit cards offer a host of rewards that cannot be matched by debit cards. Starting from reduced purchase prices, cash back schemes, gift coupons and travel miles; credit cards offer many more benefits that you should keep in mind especially when you make large purchases.
Each card has its own benefit so the next time, before your card is swiped, be sure to compare them of both and then make your decision.