1. Signup Bonuses
The standard debit card offers zero rewards or very small
rewards. Many credit cards, however, offer significant rewards when used
responsibly. For example, applicants with good credit can get approved for
credit cards that offer signup bonuses worth anywhere from $50 to $250 (and
sometimes even more). Other cards offer up a large number of points that can be
redeemed for rewards like gift cards or air travel.
2. Cash Back
If you sign up for the right credit card, you can earn
anywhere from 1-5% back on your purchases.
3. Investment Rewards
Some cards, like the Fidelity Investment Rewards card, offer
a higher rate of cash back; in exchange you must deposit your cash back
directly into an investment account.
4. Frequent-Flyer Miles
It seems like every airline these days has at least one
credit card available. Cardholders rack up miles at a rate of one mile per
dollar spent, or sometimes one mile per two dollars spent. The price of the
plane ticket you ultimately end up redeeming your miles for will determine how
valuable this credit card reward is, but many frequent flyer cards are made
immensely more valuable by their mileage signup bonuses - these are often
enough to put you 50-100% of the way toward a free flight within a month or
two.
5. Points
Many card rewards work on a point system where you earn up
to five points per dollar spent. When you reach a certain point threshold, you
can redeem your points for gift cards at some stores. You can also use the gift
cards as gifts, making holiday and birthday shopping simpler and less
expensive.
6. Safety
Paying with a credit card makes it easier to avoid losses
from fraud. When your debit card is used fraudulently, the money is missing
from your account instantly. Legitimate payments for which you've scheduled
online payments or mailed checks may bounce, triggering insufficient funds fees
and making your creditors unhappy. Late payments can also lower your credit
score. It can take a while for the fraudulent transactions to be reversed and
the money restored to your account while the bank investigates.
By contrast, when your credit card is used fraudulently, you
aren't out any money - you just notify your credit card company of the fraud
and don't pay for the transactions you didn't make while the credit card company
resolves the matter.
7. Grace Period
When you make a debit card purchase, your money is gone
instantly. When you make a credit card purchase, your money remains in your
checking account until a couple of weeks later when you pay your credit card bill.
Hanging on to your money for this extra time can be helpful in two ways. First,
if you pay your credit card from a high-interest checking account and earn
interest on your money during the grace period, the extra interest will
eventually add up to a meaningful amount. Second, when you always pay with a
credit card, you don't have to watch your bank account balance like crazy to
make sure you stay in the black.
8. Insurance
Most credit cards automatically come with a plethora of
consumer protections that people don't even realize they have, such as rental
car insurance, travel insurance and product warranties that may exceed the
manufacturer's warranty.
9. Universal Acceptance
Certain purchases are difficult to make with a debit card.
When you want to rent a car or stay in a hotel room, you'll almost certainly
have an easier time if you have a credit card. Rental car companies and hotels
want customers to pay with credit cards because it can be easier to charge
customers for any damage they cause to a room or a car this way. So if you want
to pay for one of these items with a debit card, the company may insist on
putting a hold of several hundred dollars on your account. Also, when you're
traveling in a foreign country, merchants won't always accept your debit card
as payment, even when it has a major bank logo on it.
10. Building Credit
If you have no credit or are trying to improve your credit
score, using a credit card responsibly will help your credit score because
credit card companies will report your payment activity to the credit bureaus.
Debit card use doesn't appear anywhere on your credit report, however, so it
can't help you build or improve your credit.
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