Which is better – credit card or debit card?

Both credit card and debit card are highly popular plastic money used in variety of purchases, right from local store to online bill payments and ticket bookings. Most vendors today allow customers to use their credit or debit card to make payments. But there are certain subtle differences that a customer should keep in mind before deciding which one to use.

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  1. Payment on retail outlets – Both cards are equally accepted at retail outlets, but credit card has the advantage that it allows you to earn reward points on money spent. Also it is a safer option to use, just in case of wrong transaction amount. Because in case of credit card the merchant can easily cancel the last transaction and return your virtual balance, while in case of debit card it will actually get deducted from your bank balance and will take some time to return (15 days at least) for cancelled transaction.
  2. Withdrawing money / ATM usage – Here debit cards have the advantage since most bank ATM withdrawals are free for a certain number every month. Even after that the charges are low as compared to a credit card. On the other hand the credit card companies charge a high transaction fee when cash in withdrawn on a credit card. Apart from this, the interest gets levied right from day of withdrawal.
  3. Online purchases/ bill payments – Again credit cards have certain advantage here for similar reasons as purchasing through retail outlet. The biggest advantage being, if you return items, the amount gets credited back to your credit card within 7-10 days. Here no real money gets stuck until it is in the same billing cycle. Whereas in debit card, the money would actually have got transferred to the merchant and for those 7-10 days you would have reduced real money in your bank deposit.
  4. Safety of use – Debit cards are definitely safer to use, since they require PIN (Personal Identification Number) every time you use them. Credit cards are typically used through signature on transaction slips. This makes it very easy for someone else to use the card. Though now credit card companies are bringing in extra security measures like CHIP cards that need PIN for every transaction, OTPs (One Time Password) for all online transactions and VbV (Verified by visa) which are making credit cards almost as safe as debit cards.
  5. Credit history and credit score – The biggest difference between credit card and debit card lies here. A credit card is duly reported to credit bureaus by the creditor from the day one of activation. All your payment history, credit utilization, monthly balance gets reported. This helps build a good CIBIL score if you are financial disciplined and pay all dues on time. But it can also be detrimental to your credit score (like CIBIL score) if you are not careful. A debit card, on the other hand, is never reported to credit bureaus. In fact no monetary deposits are reported. Thus even if you have a very good bank balance, and use your debit card judiciously it will not be reported and consequently will have no effect on your credit report.
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