Debit or credit card? Which is right for you?

Whenever you make a timely payment of the outstanding amount, your credit rating, and consequently your credit score goes up. Similarly any delay or default in the payment, will downgrade your credit score. Your credit score is important as most lenders check out your credit score before approving your loan application. A high score will ensure your loan application will be processed smoothly. Hence it is very essential for you to maintain a high credit score.

Today we live in a plastic age, due to convenience offered by plastic money. Credit and debit cards have gained popularity as they offer us the convenience of eliminating the need to carry cash. However both these cards have their own features, advantages and disadvantages.

Pros and cons of debit card: A debit card is a card that lets you access money in your own account. Instead of paying cash, you simply hand over your card for payment. The payment amount is directly debited from your bank account.

Pros:

• No need to worry about late fees or interest charges as you are using your own money.
• Impossible to get into debt, as the highest amount you can spend is limited by your account balance.
• Cash withdrawal through debit card is not charged.

Cons:

• No rewards, cash back or points earned on purchases.
• No redressal available for fraudulent debit card transactions.
• Inability to build credit score, making it difficult to get a loan in future.
• Inability to purchase items whose value exceeds your account balance.
• Most banks charge you debit card fees.

Credit card: A credit card is a card that lets you purchase goods on credit. You need not have money in your bank account in order to spend. Your bank gives you a line of credit. When you pay using a credit card, the merchant checks your available line of credit and approves your purchase if the balance available is more than the purchase amount.

Pros:

• Helps you build credit score.
• Rewards you with points, rewards, cash backs etc.
• Allows you to seek redressal for any fraudulent purchases.
• Most credit cards (entry level) are free.
• Allows you a grace period to make the payment.

Cons:

• Easy to fall into debt as you can easily go overboard with spending.
• Heavy interest rates and fees charged if you fail to pay the bill or pay late or partially.
• Late payments will ultimately affect your credit rating.
• Cash withdrawal attracts high interest.

Use credit card to establish your credit rating: Whenever you make a timely payment of the outstanding amount, your credit rating, and consequently your credit score goes up. Similarly any delay or default in the payment, will downgrade your credit score. Your credit score is important as most lenders check out your credit score before approving your loan application. A high score will ensure your loan application will be processed smoothly. Hence it is very essential for you to maintain a high credit score.

Credit card or debit card for high value purchase?

If you are looking to buy a high value item like LCD TV, both the cards can be used. With a credit card, you can enjoy reward for the purchase, a grace period for paying the bill, as well as the facility to convert the amount into EMI. On the other hand, with a debit card, you don’t have to worry about late payment, interest charges and risks of default. But you must have the required balance in your account, failing which the transaction would be declined.

Should you have both?

While today most banks provide debit cards when you open a bank account, credit cards need to be taken separately. You can certainly have both, but remember to use a credit card sensibly. If you can control your spending and have the capacity to pay the outstanding amount in full on time, then credit cards can be a useful tool to help you in case of emergencies and build good credit record.