Cash Vs. Credit: Which Should I Use?
Fraud Protection
Credit cards provide a unique level of security against fraud and loss. In Canada, if your card is issued by a bank and unauthorized purchases are made on your card, the maximum amount you can be responsible for is £50 (unless you demonstrated gross negligence in safeguarding your card, its information and other info like your PIN or password). If your card is issued by a federally-regulated institution other than a bank, maximum amount you’ll be responsible for is the lesser of these two options:
- £50
- the maximum amount set by your credit card agreement
Many credit cards offer zero liability protection to shield you from any financial responsibility.
Similarly, if you notice charges on your statement that you did not authorize, report the charges to your provider. In many cases they will reverse the charge immediately. With a debit card, you also get protection if you lose money due to technical programs or if someone uses your card (that is, if you reported it lost or stolen).
Typically, the maximum amount you’re responsible for can’t exceed the withdrawal limits of your debit card. But you may be responsible for more if than that if your account links to a line of credit, one or more other accounts or if you have overdraft protection. To get a full reimbursement, there are some conditions.
For one, you must notify your card issuer (without delay) of any unauthorised transaction and if your card is lost or stolen. You must also keep your PIN confidential and never share it with anyone, even family. Many credit cards also offer you the chance to freeze your card if it is out of your possession or you simply don’t want to be able to use the card without further thought.
The feature protects you from purchases made without your approval to unfreeze the line of credit.
Purchase Protection and Insurance
Purchase protection is a free service that covers damage or theft of items purchased on your eligible credit card. Your card may also offer extended warranties, price protection if the cost or the item drops or return protection allowing extra time to return merchandise. Depending on your card you may also have travel insurance or auto insurance for trips or rental cars paid for on an eligible card.
Note that rental car insurance is often a secondary insurance applied after your primary insurance.
Anti-Fraud Detection
Credit card companies use analytics to flag potentially fraudulent purchases. The goal is to prevent the need for a fraud report by stopping the transaction before it is approved. The algorithms use factors such as location and purchase history to identify transactions that fall outside normative patterns.
Large purchases may also be flagged as potentially fraudulent. The adverse side of this process is that it may result in a mistaken fraudulent concern when making unexpected purchases and your card may be declined. These errors are easily resolved by contacting customer service and verifying your identity and your intent to make the purchase.
A declined card is always an inconvenience, but anti-fraud detection can alert you more quickly to a compromised credit card. In many cases the creditor will contact you to begin the process of placing a hold on your account and providing a replacement card.
Grace Period
You can use credit cards without ever paying interest. The period between the purchase and the due date is called a grace period.
By paying the card balance in full each month, you avoid interest charges and can defer your payment up to 30 days without paying interest.
Build Credit
If you have poor credit or no credit, a credit card is often an easy way to build credit. Store credit cards or gas credit cards are often accessible even with limited credit. If you have poor credit, a secured credit card, backed by a deposit, can still build your score.
Timely monthly payments comprise the largest category of your credit score. Even if you only charge a few items each month, regular payments to your credit card will boost your credit rating.
Rewards, Cash Back and Bonuses
Many credit card providers offer rewards points or cash back on purchases as an incentive to use your card. While creditors are hoping you will carry a balance, rewards points can be an excellent way to earn while you shop, especially if you don’t carry a balance.
Some credit cards offer 3% to 6% back on selected categories. Other cards may offer 1% or more back on all purchases. You may also find credit cards offering welcome bonuses if you send a certain amount within a stated time frame, often a few months.
This incentive can make a huge difference in your budget. But make sure to evaluate your normal transactions and ensure the required purchases don’t exceed your usual spending. Reward points can be redeemed for gift cards, travel or merchandise.
You may also apply rewards or cash back as a statement credit.
Just make sure to account for any annual fees when considering a credit card for its rewards potential.
