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Where I'm from, credit cards are common, but they're not considered the main daily use-case, as opposed to debit cards.
What are practical reasons credit cards are preferred over debit cards in the US?

Etheryte
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    I would suggest you are asking the wrong question as debit and credit cards are complementary products serving slightly different purposes, as is raw cash. I would suggest the more interesting question is "why does the US still use cheques instead of debit cards" as these are substitute products. – Ben Adams Aug 10 '14 at 20:26
  • @BenAdams Checks are moribund and in terminal decline in the US. I can't remember the last time I saw someone who didn't look old enough to be retired use one in person; and it's been years since I've had to use one for anything but a very small time organization/entity (ex a landlord not using a management company, a mail fundraiser for a local emergency service organization, a penny-ante local tax whose main purpose appears to be keeping the municipal tax collector employed after changes to the state tax code partially eliminated the old job). – Dan Is Fiddling By Firelight Aug 11 '14 at 14:49

8 Answers8

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There are several reasons why credit cards are popular in the US:

  1. They are safer--you basically never pay for fraud or theft, even in terms of convenience
  2. They tend to offer rewards
  3. You don't have to worry at purchase time about your account balance
  4. They help build your credit rating
  5. They have other perks like offering free insurance on cars rented with them
  6. You can easily halt or reverse a credit card payment to a vendor that is not behaving well (I guess that's the fraud side)
  7. They are aggressively pushed by banks (who make money on them)

On the other hand, debit cards do not have any of these going for them. A debit card doesn't make much money for the bank unless you overdraw or something, so banks don't have incentive to push you to use them as much. As a result they don't offer rewards other benefits.

Some people say the ability to spend more than you have is a downside of a credit card. But it's really an upside. The behavior of doing that when it isn't needed is bad, but that's not the card's fault, it's the users'. You can get a credit card with a very small limit if this is an issue for you.

The question I find interesting is why debit cards are more popular in your home country. I can't think of any advantage they offer besides free cash back. But most people in the US don't use cash much either. I have to think in your home country the banks have a different revenue model or perhaps your country isn't as eager to offer tons of easy credit to everyone as the US is.

farnsy
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  • Many people also have debit cards which can be used as credit cards, and most users of these don't call them by their technical names, which vary, but for the Visa-backed ones is Visa Check Cards. They offer some of the benefits of a credit card (in terms of convenience rather than protection) and most people still call them credit cards even though they aren't. – Crowbeak Aug 08 '14 at 14:58
  • My bank provides one of the check cards, and they fairly strongly push you to tell stores to run it as credit instead of debit. If you run it as debit somewhere, you get a $0.20 fee per transaction pulled from your account. – fire.eagle Aug 08 '14 at 15:06
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    Here in Belgium, I have to insert my debit card into a Point of Sale terminal and enter my PIN to verify every payment. This is effectively two-factor authentication: something I know (my PIN) and something I have (my card). It prevents fraud, it protects me from unpleasant surprises at the end of the month and it prevents retailers from overcharging me behind my back. How are credit cards safer than this? – Pieter Aug 08 '14 at 18:57
  • @Pieter Does your debit card have fraud protection? If my card is misplaced or stolen and used by someone else, I'm not liable for any of the transactions they made. So, even if there is an unpleasant surprise, I don't pay for it. (And the unpleasant surprise is usually the credit card company calling me minutes after the unusual transaction was made, asking if I recently bought something that their fraud detection software noticed). The credit card isn't "safer" as you've defined, but I've got less responsibility. I don't need to worry that someone is going to try and steal my PIN. – ernie Aug 08 '14 at 21:15
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    @ernie Honestly I'm not sure but I've never been in such a situation. If your card gets stolen, you just call Card Stop and they'll deactivate the card for you so thieves can't use it. I've found the Terms and Conditions of Belgium's biggest bank in English if you'd like to investigate it further. The thief does need to steal both the card and the PIN, otherwise they can't do anything. I should also mention that most Belgian debit cards are 100% free (and without various fees), unlike credit cards. – Pieter Aug 09 '14 at 08:11
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    @BobDoolittle I can use my British debit card abroad just as easily as my credit card and I've not noticed any significant exchange rate difference between the two. Is the same not true of US debit cards? – David Richerby Aug 09 '14 at 11:02
  • @Pieter: All someone needs is the numbers on the card, your name, and your address... and they can buy loads of things online with your money mere moments after taking your card from your lost wallet. You don't want the ability to stop these transactions? – Lightness Races in Orbit Aug 09 '14 at 16:56
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    @LightnessRacesinOrbit: Are American debit cards that insecure? Belgian debit cards have an electronic chip that you need to insert into a Point of Sale terminal to perform transactions. Every transaction has to be confirmed with my PIN code. Even if they steal my card, they wouldn't be able to use it without knowing my PIN as well. Of course I would like the ability to reverse fraudulent transactions, but I've never had to do it before so I don't know if it's possible with Belgian debit cards. – Pieter Aug 10 '14 at 09:10
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    @LightnessRacesinOrbit: And another note on how online banking works in Belgium: you have to insert your debit card into a Digipass and enter your PIN code to generate a temporary login token. You also need to sign most transactions by generating an additional token with your Digipass. – Pieter Aug 10 '14 at 09:14
  • @Pieter: if that's the case, then you can't make any phone or online purchase, which is a convenience many of us use often. Besides, chips like yours are increasingly common in American credit cards (and have been in Canadian ones for years). – Martin Argerami Aug 10 '14 at 11:08
  • @Pieter: For online banking (which we were not discussing) that's also been the case in the UK for many, many years now. However, it is not employed for online transactions through a merchant, and I don't see how it could be so in Belgium. Are you saying that all online merchants magically support DigiPass login tokens? I've never seen one. All sites ask for the card number, expiry date and CCV. So you cannot use your card to make online transactions? The only way I can see this working is via the equivalent of VBV (which would make sense). – Lightness Races in Orbit Aug 10 '14 at 12:12
  • @Pieter: As for "are American debit cards that insecure" I have no idea; ask an American. – Lightness Races in Orbit Aug 10 '14 at 12:13
  • @MartinArgerami: I'm not sure whether that's the case in Belgium, too, but in my experience, cards are hardly used for online purchases at all; instead you get the vendor's account details where you can transfer the money to (so the transfer is entirely in your control), or you give the vendor a direct debit permission for that transaction (which you can undo with a few clicks in your online banking interface). The debit card is just a workaround for when you shop offline, an automated way of placing such a direct debit permission with a built-in identity verification (by PIN or signature). – O. R. Mapper Aug 10 '14 at 21:13
  • farnsy, why have my comments been deleted? I am aware that I generally am on the chatty side, but these were spot-on as a response to your last paragraph. – O. R. Mapper Aug 10 '14 at 21:17
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    @O.R.Mapper I have not deleted anything. Don't know what the deal is. – farnsy Aug 10 '14 at 22:17
  • @LightnessRacesinOrbit and others: we can and do pay with debit cards when shopping online. Many third party payment gateways support debit cards. The gateway will present a page with a form from your bank which issued your debit card. so you need: your card ( number ) and Digipass. We always ( yes, with every purchase online or offline ) need to enter our pin code when paying. I also have never seen or heard about fraud unless someone stole a debit card and got his hands on your pin ( by social engineering, was looking when you typed it in, ... ). – Webdevotion Aug 11 '14 at 14:52
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    Another big difference why we don't use credit cards that often: In Belgium ( probably in Europe ) we don't need a credit rating to get a loan / mortgage. Banks assess our ability to pay back the amount over a given timeframe using our job / income / partner / properties / credibility / ... – Webdevotion Aug 11 '14 at 14:58
  • @Webdevotion, thanks for that info. Reading between the lines of wikipedia on "credit bureau" it looks like you are right. It looks like the UK is similar to the US, but most of the rest of Europe (and the rest of the world) either doesn't use credit bureaus or doesn't rely heavily on them. – farnsy Aug 11 '14 at 16:52
  • @Pieter My point was that American debit cards don't offer the fraud protection that credit cards do. Often, if transactions are made on your debit card (meaning they have your card and your PIN), you're liable and the money's gone out of the bank account you've linked to. On credit (which they only need the card for), you're not liable, and you'll have the charges refunded, making credit "safer" than debit. In the US, with decent credit history, most credit cards are free. The two credit cards I have offer ~1.5% back to me for every transaction I make, and there's no fees of any sort. – ernie Aug 11 '14 at 17:10
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    @ernie: As Webdevotion has said, debit card fraud is relatively rare in Belgium because our payment system is more secure. But I do see the value of fraud protection, even though I assume the cost of it is probably built into annual credit card fees, money exchange fees, late payment fees and/or cash withdrawal fees. (After all they have to make credit cards profitable somehow, don't they?) It's possible that some Belgian debit cards offer similar fraud protection features but I've never looked into this because relatively few people have had to deal with it. – Pieter Aug 11 '14 at 17:52
  • @Pieter Yes, the two-factor auth of chipped cards makes fraud less likely. Even with two-factor auth, I'd still want the fraud protection. The fraud protection is generally recuperated by the credit card companies in the interest they charge as well as the merchant fees, so no direct cost to the consumer (as stated previously, no fees for most credit cards). Merchants have factored the cost of processing credit cards into their prices, but a consumer can't really see this cost. – ernie Aug 11 '14 at 20:58
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For me, it is mostly for the fraud protection.

If I have a debit card and someone makes a fraudulent charge the money is removed from my bank account. From my understanding, I can then file a fraud complaint with the bank to recover my money. However, for some period of time, the money is missing from my bank account. I've heard conflicting stories of money being returned quickly while the complaint is undergoing investigation as well as money being tied up for several days/weeks. It may depend on the bank.

With a credit card, it is the banks money that is tied up.

firedfly
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There are two things I can think of that might be different in other countries:

  • Until 2013, American Express, Visa and MasterCard prevented businesses from charging extra for credit card usage, and credit card surcharges still illegal in several states. Since credit card companies add a surcharge to credit card purchases, and merchants can't pass that onto credit card users, they just make everyone pay extra instead. Since everyone gets charged the credit card surcharge, you might as well use a credit card and recoup some of that via "rewards" points.

  • Almost all credit cards here have grace periods, where you won't be charged interest if you pay back your loans in full within some period of time (at least 21 days). This makes credit cards attractive to people who don't need a loan, but like the convenience that credit cards provide (not carrying cash, extra insurance, better fraud protection). Apparently grace periods aren't required by law here, so this might be common in other countries as well.

Brendan Long
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    In Germany it seems to be the default case that credit card debt is paid every month from your current account. I do this and so I don't have the slightly guilty feeling I'd get if I bought something "without paying for it". Having said that, most shops here do not want to see a credit card, and I have had to pay a surcharge in the past. Small businesses don't want to pay the charges. – RedSonja Aug 08 '14 at 08:32
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    "Not carrying cash" is not a benefit of credit cards over debit cards. In fact, conversely, "not being able to carry cash [without being charged for it]" is a downside of credit cards versus debit cards. – Lightness Races in Orbit Aug 09 '14 at 16:58
  • Didn't the law for the first bullet point change so that charging extra is allowed? – user541686 Aug 12 '14 at 05:33
  • @Mehrdad The credit card companies (Visa, American Express, MasterCard) can't stop merchants from adding surcharges anymore because of a 2013 ruling, but there are still laws in some states that make those surcharges illegal. – Brendan Long Aug 12 '14 at 16:25
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Personally, I use my credit cards for everything because I get reward points (or, cash back, depending on the card), and I build credit history.

I've had credit cards since I was 18 (now 22), and my credit score is in the higher end 700s which I'm told is pretty good for my age. Additionally, since I put my rent and large purchases on my credit card, I have a lot of reward points. I use these to buy things I wouldn't normally buy to try them out and see if they bring any value into my life. If not, I didn't really lose anything, but I have found value in some of those things.

I realize most of this is gamification and consumerism at play, but getting that extra little thing once in a while for "free" which is pretty nice.

Seiyria
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    You do realize that the "free" stuff you get on points is paid for by the fees charged to retailers, who get it by raising their prices to get the money from...you? – DJohnM Aug 07 '14 at 17:23
  • @User58220 yes, I'm quite aware - I price-checked the point-to-dollar ratio and it costs, on average, 20$ more than the item on amazon. What else am I going to spend those points on? – Seiyria Aug 07 '14 at 18:18
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    @Seiyria seems related: http://workplace.stackexchange.com/questions/31991/is-it-ethical-to-claim-reward-points-for-a-purchase-made-with-company-funds –  Aug 07 '14 at 21:11
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    @user58220 at the same time, not like they're going to start marking down the price at the register if they see you're going to pay in cash, so until they do that, Visa 4eva – coburne Aug 08 '14 at 19:02
  • User58220 wasn't talking about the point-to-dollar coat when you redeem, but just that retailers prices have all been driven up higher due to credit card users. I'm with @coburne though - my stopping using my card isn't going to cause retailers to lower prices. – ernie Aug 08 '14 at 21:21
  • @User58220, yes, and since the prices have already been raised by credit card fees, he'd be silly not to use a credit card if there is a reward in it for him. – Carson63000 Aug 10 '14 at 11:20
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Your question is based on a false premise.

Debit cards are more popular in the US than credit cards are.

Indeed it seems to be the non-US part of the world that is big in credit cards. See here for example

jjanes
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  • It is only with the debt crisis in the US that debit cards have become more popular - because fewer people qualify for credit these days so can't get credit cards. – BobDoolittle Aug 08 '14 at 16:34
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    Note that the page you link to only includes credit vs. debit data from Visa and MasterCard, whereas, traditionally, most debit cards e.g. in Europe have been issued by local banks or national payment networks like CB (France) or Girocard (Germany). (Often, these could be dual-use cards combining a Visa / MC credit card with a local debit card.) Indeed, I suspect the strong apparent growth in international Visa / MC debit card use shown in the figures may be at least partly due to European banks increasingly replacing their local debit cards with Visa / MC debit+credit cards. – Ilmari Karonen Aug 09 '14 at 11:59
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  1. Protection from fraudulent charges - If someone steals your card, you will not be liable for fraudulent charges. Call the bank, tell them your card is compromised. They will cancel it and send you a new one. You are still protected if you used a debit card, but it is generally more difficult to reverse fraud.
  2. Charge-backs - If a merchant sells you defective merchandise and refuses to give you a refund, you can have the credit card company issue a chargeback. If you had used cash/debit, you probably would have been out of luck.
  3. Extended warranties - Many cards will extend warranties on items you purchase, often by a year.
  4. Rewards - Most cards offer rewards for using them, often in the form of points you can use to spend on travel, or straight up cash.
  5. Sign-up bonuses - Many cards will give you sign up bonuses if you spend a certain amount within the first few months of opening it.
  6. Hold on to your money for longer - Even if your card isn't in an introductory 0% interest period, you can hold off on paying for a while before interest will accrue. Once your statement is available, you typically have a month or so before the charges on that statement actually accrue interest. This means you can hold on to your money longer if you need to.
  7. Free credit reports - Some cards give you a real monthly credit score for free. An example of this is the Discover IT card.
  8. Builds your credit history - You may want to apply for a mortgage or car loan in the future. Having a good payment history on your credit cards will help you get approved for these big loans and get a good interest rate.
stonk-overflow
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    I don't know where this idea that there's no fraud protection/chargebacks on a debit card comes from. I've had my bank perform chargebacks on debit card purchases that turned out to be fraudulent before. Maybe some people just have sucky banks? – Mason Wheeler Aug 07 '14 at 23:39
  • @MasonWheeler You are correct, it is possible to issue a chargeback with a debit card, but is typically more difficult. With a credit card, none of YOUR money has even been spent, only the credit card issuer's. – stonk-overflow Aug 08 '14 at 07:14
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    @MasonWheeler How/when did you realize there was fraudulent activity? How long did it take to reverse? Was there still enough of a balance in the account for your other obligations in the mean time? It doesn't take long for other payments out of the account to bounce and by then the damage is done. – Mr.Mindor Aug 08 '14 at 14:33
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    @Mr.Mindor: Sure, but how is the story any better with credit cards? Having part of your credit limit temporarily gone can easily cause declined transactions or over-the-limit fees, just as much as having part of your bank balance temporarily gone. – Ben Voigt Aug 08 '14 at 20:09
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    @MasonWheeler: Good banks compete for customers by providing fraud protection on debit cards, in contrast to credit cards where the protection is legally mandated. – Ben Voigt Aug 08 '14 at 20:10
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    @MasonWheeler in USA legislation, there is extra protection for credit card purchases that don't apply for debit card purchases, thus there is some advantage. For most other countries, the protection is equally good/bad for credit and debit cards. – Peteris Aug 09 '14 at 16:15
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The real reason credit cards are so popular in the US is that Americans are lazy and broke, and the credit card companies know how to market to that.

Have you ever heard of the $30k millionaires? These were individuals that purchased as if they were some of the wealthy elite, but had no real money to back it up. American society has pushed the idea of "living on credit" for quite some time now. An idea that is even furthered by watching the US government operate solely on credit. (Raise the debt ceiling much?) Live in America for more than six months and you will be bombarded with "Pre-Approved Deals" with low introductory rates that are designed to sucker the average consumer into opening multiple accounts that they don't need. Then, they try and get you to carry a balance by allowing low minimum payments that could take in the neighborhood of 20 years to pay off, depending on carried balance. This in turn pads the credit companies' pockets with all of the interest you now pay on the account. The few truly wealthy Americans do not purchase on credit.

Owen
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Credit card fraud protection (by law), credit card cash back programs (provided by most CC issuers), and debit card fees (commonly imposed by the merchant).

The crux is that with CC transactions, a small percentage is remitted to the issuing bank. Since the banks are already making money hand over fist on CC's, they incentivize people to use them.

CC security is also lax because the merchant is responsible for fraudulent charges instead of the bank. If the merchant fails to check a signature, they are held liable for all charges if the card holder reports a fraudulent transaction.

Rich Remer
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  • Interchange fees ("a small percentage is remitted to the issuing bank") apply also to debit cards, and liability shift between the merchant and bank also generally is the same if you compare, say, Visa creditcards and Visa debitcards. – Peteris Aug 09 '14 at 16:31
  • Then explain me why EasyJet is more expensive with a credit card than with a debit card. – yo' Aug 11 '14 at 16:11