When is a credit card better than a debit card?

Unless you’re making a major purchase, you probably use your debit card for day-to-day spending, but using a credit card instead could give you extra perks.


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The main difference between a debit and credit card is that when you use a debit card to buy something, the money comes out of your current account. You won’t be charged interest unless you have gone into your overdraft. With a credit card, you are borrowing money, and will be charged interest on what you owe if you don’t clear your balance each month.

But if you can be certain that you will always pay off your debts every month, then the chances are you may be better off using a credit card rather than a debit card. According to research by the UK Cards Association, 61% of all credit card users clear their balance in full each month.

Here, we take a look at some of the advantages of using a credit card over a debit card…

Earn some extra cash

As long as you always clear your monthly balance in full, you could be earning cashback on your spending.

Some canny cardholders use their credit card for all their monthly shopping and then repay the balance before they pay any interest, meaning they get the cashback but don’t end up saddled with debt.

The market-leading offer is the new MBNA American Express Card with Cashback, which pays 1.5% on shopping at most petrol stations and supermarkets. You also earn 0.75% cashback on all spending elsewhere.

However, the representative annual percentage rate (APR) is 18.9% variable so, whatever you do, don’t leave a balance on the card month to month.

Another option is the MBNA Visa Card with Cashback, which pays 1.25% cashback on most fuel spending and supermarket shopping, plus 0.75% elsewhere. Just like the Amex card, it's APR is 18.9% variable, so don't be tempted to leave a balance at the end of the month.

Next best is the American Express Platinum Cashback card, which pays 5% on spending up to £2,000 in the first three months, meaning potential cashback of £100.

After that, you earn up to 1.25%, depending on how much you spend. The representative annual percentage rate is 19.9% variable, so make sure you only use this card if you plan on leaving a balance after the first six months. During the first half a year, you pay 0% on purchases.

Other rewards

It’s not just cashback you can earn with your credit cards – you can also take advantage of discounts, shopping vouchers and other rewards by using the right credit card.

The market-leading rewards card just now is the new Marks & Spencer Credit Card, which gives you one point for every £1 spent at M&S and one point for every £2 spent elsewhere.

You get a £1 reward voucher for every 100 points you wrack up. It’s also the market-leading purchase credit card, offering 15 months at 0% on spending. The representative APR is 15.9% variable.

If you regularly shop at a major supermarket, using its own branded credit card can earn you really useful rewards.

For example, the Tesco Clubcard Credit Card gives you an extra point for every £4 you spend. It also comes with 13 months at 0% on purchases and nine months at 0% on balance transfers, for a 2.9% fee.

After that, you’ll pay a representative APR of 16.9% variable. But, of course, if you clear your card in full each month then that won’t affect you.

The right card for you will depend on how you use it. Regular travellers can earn air miles or money off motoring costs, or there are even cards that pass the rewards onto your favourite football club.

Building up your credit score

If you want to boost your credit score then having a credit card can help. Using a credit card sensibly by clearing the balance each month is a great way to show lenders that you can be relied upon to be careful with your credit.

That makes it more likely that you will qualify for market-leading deals and low rates.

Use our card-matching tool to see the cards you’re most likely to qualify for.

If your credit score is particularly low then it could be worth applying for a card that’s specifically designed to work as a credit builder.

For example, both the Capital One Progress Card and Barclaycard Initial are designed to help people build up their credit scores. They each charge a representative APR of 29.9% variable, so it’s important not to leave a balance outstanding.

Bear in mind that if you have a particularly poor credit history, perhaps with County Court Judgements, these providers may not be willing to give you a credit builder card. Again, use our Find the right card for you gadget to see if you’re likely to qualify.

Protecting your purchases

Credit cards fall under the Consumer Credit Directive, meaning that your card provider is jointly liable with the actual supplier for any purchases you make.

That means that if you buy something that turns out to be substandard or broken, you have an additional avenue to claim your money back. So, if you can’t chase the supplier for some reason – perhaps it has gone out of business – your card provider will reimburse you.

As long as your purchase costs between £100 and £60,260 then it will be covered.

How to beat existing credit card debt

If you are finding it hard to shift your existing card debt then you may be wondering why you ever took out a credit card. But having the right card can help you shift that balance more quickly.

A 0% balance transfer offer can save you a fortune in interest, allowing all your repayments to go towards clearing the debt rather than paying the provider.

The market-leading card is the Barclaycard Platinum deal. It offers 18 months at 0% on balance transfers, for a 2.9% fee.

After that initial interest-free period, you’ll pay a representative APR of 16.9% variable. If you’re transferring a balance from more than one card, you could qualify for a 25% discount on part of the fee. 

But remember…

While using a credit card has many advantages over a debit card, you should stick to a debit card for cash withdrawals.

If you use a credit card, interest is usually charged from the time you took money out, even if you clear your debt in full. Most cash machines allow you to make debit card withdrawals for free, although some impose a fee, so check before you take money out.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

We’re free, independent and compare all UK credit cards, as well as offering exclusive deals you can’t get anywhere else.

Contact moneysupermarket.com at Moneysupermarket House, St David’s Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011

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