Sometimes reaching for your wallet is like a multiple-choice test: How do you really want to pay?
While credit cards and debit cards may look almost identical, not all plastic is the same. There’s a difference in how transactions are processed and the protections offered when using your credit vs. debit card. Since a debit card is a direct line to your bank account, there are places where it can be wise to avoid handing it over — if for no other reason than complete peace of mind.
Here are 10 places and situations where it can pay to use your credit card over your debit card:
- Online:Using a debit card for online purchases should be avoided because the card is linked directly to your checking account. If you have a problem with a purchase or the card number gets stolen, money is taken out of your account right away and you may have to wait to get your money back until everything is sorted out.
The Federal Reserve’s Regulation E (Reg E) sets your liability for fraudulent purchases at $50. Some financial institutions, including First Entertainment, voluntarily set liability at $0.
These protections are great but don’t relieve you of the hassle of disputing the transaction to get your money back. If your account has a lower-than-expected balance, it can also cause problems in terms of fees and refused checks or payments. - Big-ticket items: With a big-ticket items, credit cards offer dispute rights if something goes wrong with the product or the purchase. There are fewer protections with a debit cards. Some credit cards even offer additional coverage, such as warrantees, insurance, etc.
- Security deposits: If you use your debit card to pay for a security deposit, the funds will be taken out of your checking account right away. If you use a credit card, the merchant still gets its security deposit, and you still have access to all the money in your checking account.
- Restaurants: There are two reasons not to use your debit card at restaurants. First, restaurants are one of the few places where your card leaves your sight when you use it, leaving you open to having your information stolen.
The other problem is that some establishments will approve a transaction for a higher amount than the actual purchase because they are assuming you intend to leave a tip. The amount of money frozen for the transaction could be quite a bit higher than the amount of your tab and it could be a few days before everything is sorted you get the cash back into your account. - First-time customer: If you’re purchasing something from a brick-and-mortar or online store, skip the debit card for the first couple of transactions. Get a feel for how the business is run, how you’re treated, and the quality of the merchandise before you hand over a card that links directly into your checking account.
- Buy now, take delivery later: If you are buying now but taking delivery days or weeks later, a credit card offers dispute rights that a debit card may not. Please be aware though, some credit cards limit the protection to a specific window of time, so settle any problems as soon as possible.
- Recurring payments: We’ve all heard how some places won’t stop billing a person’s card even after they cancel their membership. Now imagine the charges aren’t going onto your credit card, but instead coming right out of your bank account. There’s also the problem if you forget to deduct a recurring payment from your checkbook one month; you could face fees if you don’t have overdraft protection.
- Future travel: When you pay for your travel, the money is taken out of your account immediately. That means that money is gone for a trip you that you won’t take for a while, you’ll be out the money immediately!
Hotels aren’t immune to hackers and data breaches either and several name-brand establishments have been hit in the past. - Gas stations and hotels: Some gas stations and hotels will place a hold on your card to cover customers who may leave without settling the entire bill. That means that even though you only bought $10 in gas, you could have a temporary bank hold for $50 or even $100.
It’s the same with hotels, where there are sometimes holds or deposits to make sure you don’t run up a long-distance bill, empty the mini bar, or trash the room. The practice is almost unnoticeable if you’re using a credit card but can be problematic if you’re using a debit card and have just enough in the account to cover what you need.
Pro tip: At hotels, ask about deposits and holds before you present your card. At the gas pump, select the pin-number option, which should debit only the amount you’ve actually spent. - Checkouts or ATMs that look “off”: Criminals are getting better with skimmers and planting them in places you’d never suspect — like ATM machines on financial institution property.
Take a good look card reader the next time you use an ATM or self-check out lane. Does the machine fit together well or does something look off?? If you suspect it’s been tampered with, think twice about using it.
Thinking of getting a credit card? First Entertainment Credit Union has you covered with multiple choices to fit your lifestyle. Find a Credit Card from First Entertainment Credit Union >>