Debit Cards Are Now More Popular Than Credit. Are You Maximizing Your Credit Cards?

Good things can come in small packages.

Credit cards are extremely popular. According to data from the Bureau of Consumer Financial Protection, 175 million Americans have at least one credit card. In spite of this, debit cards were more popular during the second quarter of 2022, per data from S&P Global Market Intelligence. In fact, 56.2% of consumers reported favoring their debit card as their primary payment card during this time, versus 39.5% favoring their credit card. These numbers represent quite a shift; in 2021, the divide was 40.2% for debit and 54.6% for credit.

Debit cards definitely have their place in your financial toolbox. They allow you to take out cash quickly and easily (and for free, if you use an ATM in your bank's network). And a debit card has nothing to do with your credit score. If you're trying to avoid credit cards because you struggle with overspending, the fact that your debit purchases are limited to the money you actually have in your checking account might be a good thing. That said, you could be subject to overdraft fees if you accidentally spend more than your checking account has in it.

There are a few ways credit cards outshine debit cards. If you're among the consumers who lean harder on paying with a debit card, here are some things to appreciate about credit cards instead. If you keep them in mind, you can maximize your credit cards' potential and improve your financial life.

Building credit

This is perhaps the biggest advantage of credit cards versus debit cards. In most cases, you cannot build credit by using your debit card to make purchases. This is because you are directly spending your own money, rather than borrowing it from the issuer that extended credit to you in the form of a credit card. When you pay with a credit card, you're basically borrowing some of that money from the issuer; they'll pay your takeout bill or for your tank of gas, and you'll pay it back later. This in turn impacts your credit score. It improves when you pay those bills in full and on time, keep your credit utilization ratio low, and otherwise use credit responsibly.

Purchase and fraud protection

Another area where credit cards easily outshine debit cards is purchase and fraud protections. Many of the best credit cards offer $0 fraud liability, so if someone steals your card and makes, say, $1,000 worth of purchases with it, you wouldn't have to pay any of that money back to your credit card company. Your liability for fraudulent purchases made with your debit card varies based on when you report the problem.

If you catch the theft early and report it, you may not be out any money. But if it's been more than two days, you could be out $500 of your own money, or much more if it's been more than 60 days. Credit cards also offer protections for your purchases. If you make a purchase and it is stolen or damaged within a certain period of time, you can file a claim with the issuer of the card you used to buy it, and they may reimburse part or all of your loss.

Rewards

And finally, here's a perk of using credit cards you just don't get with many debit cards: cash back and other rewards. While there are a handful of debit cards that offer rewards, debit cards aren't as lucrative for banks, so rewards aren't as common. But you'll find credit cards offering rewards in the form of cash back credited to your account (or routed to a bank or investment account), as well as points that can be converted to savings on travel and other spending. Some credit card issuers also have partnerships with merchants that result in coupon savings for cardholders.

There are multiple categories of rewards and cash back credit cards, so if you know you spend more money on certain things over others, you can target a credit card that rewards handsomely for your specific spending. For example, I enjoy cooking, and consequently I spend a lot of money at grocery stores. So I recently applied for (and got approved) for one of the best credit cards for groceries.

Debit cards certainly have their place, and if you struggle with credit card debt, it might make more sense and be safer for you to lean harder on your trusty debit card. But if you've wondered what advantages credit cards may have over debit cards, use your new-found knowledge to maximize your credit cards and build your credit.