Guest Post by Louise Tillotson
A debit card is a hybrid between a credit card and an electronic check. You use a plastic card to make purchases and your payment is deducted directly from a linked checking or savings account. Debit cards are becoming increasingly popular with consumers because they are so convenient, widely accepted and won’t lead you into budget-busting temptation whenever you go to the mall. However, despite these benefits, these neat little plastic cards are hiding a few dirty little secrets.
1. Debit Card Fees
Despite their increasing popularity, debit card companies keep adding user fees. Many companies charge a monthly fee, a set up fee and ATM fees, which can be as high as ten dollars a pop. Non-sufficient fund fees, also called overdraft fees or over-limit fees, are also becoming more common, with consumers being charged an average of $29 for each overdraft charge.
Be sure that you read the fine print on your current accounts before using one of your debit cards to make purchases or ATM withdrawals.
2. Debit Cards Won’t Help Your Credit Rating
Using a debit card won’t help you establish, boost or rebuild your credit history. Because debit cards work like electronic checks, your bank gets notice of your payment, but the credit bureaus never see any of your debit card activity. On the plus side, debit cards can’t lower your credit score either.
3. Few Debit Card Reward Programs
The number of debit card reward programs has dropped dramatically in recent years, particularly with the cards offered by major banks. Even the few remaining debit cards that offer cash back or airline mile rewards are making it more difficult to earn your rewards, sometimes requiring you to make expensive purchases or shop at specific retailers.
4. Sometimes It’s Just Better to Use Credit Cards
Despite the convenience of debit cards, there are definitely occasions when it’s better to use a credit card. For example, using a credit card to purchase big-ticket items prevents you from draining your bank account. Credit cards also offer you more protection if you run into problems with your purchase. Some credit card companies even offer extended warranty protection or theft insurance on larger purchases.
If you would like to improve your credit score or plan on applying for a mortgage in the future, be sure you have at least one credit card among your current accounts. Make your credit card payments on time and in full to improve your credit rating and help you qualify for a lower interest rate on your mortgage later on.
5. Debit Cards Leave Your Bank Accounts Vulnerable
Debit card thieves can easily find out your account and PIN numbers with skimming devices. Having your account information stolen can totally destroy your finances if the thieves decide to wipe out the bank account linked to your card. In addition, cashiers sometimes accidentally mistype purchase information. If they punch in $2,900 instead of $29, you’ll be out of all that money until you can get the mistake straightened out.
It is always a good idea to check your current accounts every few days to monitor for any unusual or fraudulent activity. Also review your bank statements as soon as they come in the mail and notify your debit card company if you spot any errors.
This guest article has been written by Louise Tillotson of www.moneysupermarket.com