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Given their nature of “buy first, pay later”, most people tend to believe that credit cards equal debt, and therefore prefer to use their debit cards instead. However, it’s not the credit cards that determine whether an individual runs into debt; it’s his spending habits that do. In fact, when used responsibly, credit cards can be more beneficial than debit cards.
In some cases, your insurance can get you an extended warranty on purchases you make using your credit card. Citibank’s Lifestyle Guard is one such policy that gets you extended warranties for appliances purchased using your credit card. This means that your item will remain protected even after the manufacturer warranty has expired.
Some credit cards also come with safeguards designed to help protect your purchases. If an item you bought gets stolen or damaged within 90 days of your buying it, you can potentially get a refund or replacement if you paid for it with your credit card. While this feature is not very commonly offered in Singapore, the American Express Gold Card does provide it. It gives you Purchase Protection of up to S$8,000, and a Refund Guarantee of up to S$800.
In the unfortunate event that you fall victim to a fraudulent transaction on your credit card, you might also be able to get a “chargeback”. A chargeback is essentially your card-issuing merchant disputing the transaction with the seller on your behalf.
It is important to know that while a chargeback facility is available on debit cards as well, it works much better for credit cards. The reason is simple – when you pay with your debit card, the money is already paid to the seller directly from your bank account. When you use your credit card, however, the amount is paid by your merchant. This protects your own cash from being locked up (while the dispute is being resolved) and gives you an added layer of protection against fraudulent transactions.
Purchases made with a debit card use funds directly from your bank account, so it is essentially a “cash” transaction. These transactions do not show up on your credit report. Credit cards, on the other hand, help you build your credit history because they measure and track your credit and financial progress over time.
So, by paying your credit card bill in full every month, you can maintain a good credit score. This may not seem like a big deal when you have no major financial expenses lined up. However, when you need to borrow money from a bank for a home loan, car loan, or to plan your wedding, the banks will look at your credit history to check if you are a responsible borrower before lending you the money.
To find out your credit score, you can purchase your credit report from the Credit Bureau Singapore for a consolidated view of your existing credit and loan records from different credit providers. A credit report can also help you keep track of the details uploaded to your credit file. This means that if your file is used for obtaining credit through fraudulent means, you would be able to spot it in your report.
Besides the above, some of the more obvious benefits of a credit card are that they earn you cashback and airline miles. Incidentally, this is something many debit cards also provide these days.
While considering the benefits of using your credit card, it’s important to recognise that using your “credit” and carrying debt are not the same thing. So while you should definitely take advantage of the benefits, do remember to pay your monthly credit card bills on time.