When to use a credit card vs a debit card
When we first start using debit and credit cards, it’s not always clear when to use each one. Today, we’ll dive into how they are different and the best times to use them.
When to use a debit card
A debit card is similar to cash, in that you’re spending your own money. The money automatically comes out of your bank account and you won’t be charged interest on it.
There are situations where it’s more suitable to use a debit card over a credit card:
For small everyday purchases such as fresh fruit or coffee
If you’re already managing a substantial amount of debt
If you’re unsure of how much you have spent on your credit card
When you may want to use a credit card
Protection on your purchase
Section 75 is part of the Consumer Credit Act 1974. It means that your credit card provider is jointly and severally responsible for any breach of contract or misrepresentation by a trader or retailer.
To build a credit score
If a credit card is used diligently and responsibly, it can improve your credit score. For example, paying your bills on time is a green flag, demonstrating your ability to use a credit card.
Maintaining a low utilisation rate is also a great idea when looking to boost your credit score.
A low utilisation rate is achieved by keeping your spending way below your credit limit. If you’re constantly pushing the boundaries of your credit limit, your score could be negatively impacted. There’s no fixed recipe for the ideal rate, but aim to keep it below 10% for strong credit scores.
Take advantage of reward schemes
There are a wide range of reward schemes available across different credit cards.
A common example of this is air miles. Many credit cards partner with airlines to entice new customers and offer better air miles should you bank with them. Similarly, some credit cards also offer points that can be applied against travel-related purchases, such as car hire and lodgings.
Different cards may also offer discounts and gift cards. For example, retailer Amazon has linked up with card providers to offer gift cards and cashback on every Amazon purchase.
Closing thoughts
It’s important to know when to use different types of payment cards. Whether you’re looking to build up your credit score or grab some groceries, using the right card can support your financial wellbeing.