Which Should you Choose?
Who remembers the days before Debit Cards? I know I do and while working in banking the whole focus was on getting people to convert their purchasing choice from Credit to Debit. Why does it matter? Well, it all depends on which side of the paycheck you are on and who you are serving. For the Banks, it meant additional income for them. For their customers, it meant lower Merchant Services costs which is always our goal to save our clients money. For the consumer, it meant being fiscally responsible as you could only spend what you had. It sounds like a great WIN for so many, so what’s the downfall? The downfall is, it does not reflect on your credit scores. That’s a good thing, right? Not if you are trying to build or improve your credit score as without history and activity…there is nothing there to improve and unfortunately lack of activity and good history can only reduce the score. What? I get punished for not using it…YES!
Credit cards are convenient and easy to use by allowing the purchaser to buy goods and services that they may not be otherwise able to afford. A creditor is one who allows you to borrow with the condition of future repayment. You pay a modest interest rate and/or fees with payments made monthly over time.
Debit cards are typically linked to your checking or savings account, thereby allowing you to make purchases that are immediately withdrawn from your account. Yes, your debit card may look like a credit card with the Visa or Mastercard logo on it, it is NOT! It is not reported on your credit report as a charge card as it is not an extension of a line of credit.
Everything depends on your personal situation. As you learn more about managing your credit for good (stay with me, read all blogs & do action items) you will begin easily and effortlessly making wise choices as to CREDIT -vs- DEBIT. In the meantime, here are some suggestions when it may be wise to use credit.
- Making a Major Purchase. Credit cards offer the best protection on purchase disputes. You may also get increased warranty protection and insurance against theft of the item with a credit purchase. This is great when making a large purchase or online purchases. WARNING: When using your debit card, the money is gone from your account immediately and here is a NEW WARNING about GIFT CARDS…they look exactly like a credit card but they are NOT! They do not carry the same protections as a credit card, they do not affect your credit scores and in most cases you CAN NOT dispute an item…learned that one the hard way!
- When Buying Gas, Checking into a Hotel, or Renting a Car. These types of vendors typically determine the maximum amount you could spend and put a hold on the account to protect themselves. This frozen amount is held until your bill is finalized but can take up to 48 hours to be released. You can always hold the hotel or rental car with a credit card and then pay the bill itself with your debit card. Be sure to communicate with the vendor in order to make sure they don’t automatically check you out with your credit card. When we are buying gas so often, having these (debit card) holds and delays in releases can really mess with your balances especially when cutting it close and it always happens when the banks are closed and you need it the most!
- Cash Back and Big Rewards. Credit card companies have enticed us for years with their bonus programs and so in these cases it is better to use them instead of debit cards. Use them and pay them appropriately being careful with your overall utilization rate (see previous blog).
- Monthly (or less) Monitoring of Account. If you are one who ignores their spending activity, you may wish to use a credit card account. Legally if your credit card has been stolen, you are only liable for $50 as opposed to a debit card transaction which can leave you accountable for much more.
So there you go…some great information to increase your Credit IQ.
Celebrate your WINS from last week! Yay!!!
This week (in the next 48 hours) it is recommended that you…
1.) Carefully review your revolving accounts to make sure your individual and overall credit utilization rate is 30% or less. If it is over, do not fret just make a simple plan to reduce it or contact me personally at the email below in order to schedule your free Action Plan Coaching Session (a $97 value).
2.) Segregate your cards based on the type of usage and also with regards to the utilization rate as you will want to pay down the ones with the highest debt-to-overall available credit ratio.
For additional resources, please contact me at Info@CreditGal.CO