I don’t have a credit score. Is it necessary to get a credit card for this?
Will having a credit card harm my credit score?
Can debit cards be considered as a part of my credit report?
A debit card is good enough for me - why apply for a credit card?
These are just some of the queries we get via email from users of our OneScore app, once they check their CIBIL and Experian credit score and report.
A quick look at the basics:
What is a credit card?
A credit card is among the most common forms of consumer credit funded by a bank along with a loan or Line of Credit. It is provided by a bank based on your overall creditworthiness on the understanding that you will repay the outstanding amount once the statement is generated. You are assigned a credit limit up to which you can spend on the card. You can use it for purchases or cash withdrawals (fees and charges applicable).
What is a debit card?
A debit card is issued when you open an account with a bank (some banks may require you to apply for it). It is linked with your account and you can use it for purchases as well as cash withdrawals without incurring any fees or charges, since the money is being spent from your own bank account. Do note that charges may apply in certain cases, like if you exceed permissible number of withdrawals in a period or withdraw from another bank’s ATM, and so on.
Credit Card vs Debit Card
Most banks nowadays issue a debit card when you open an account with them. What’s more, banks also give reward points on debit cards and offer an EMI option too on purchases, so you may wonder if there is any reason to apply for a credit card at all.
Here are 5 ways a credit card scores over a debit card:
1. Interest-free credit period
When you make a purchase using your credit card, you get an interest-free credit period in which to repay this amount. This depends on the transaction date, statement date, and payment due date, and varies across cards.
This is applicable only if you do not have any previous outstanding on your card. If used well, this can be a very effective method to manage your spending and cash flow every month.
However, when you make a purchase using your debit card, the money is debited from your bank account immediately, and there is no credit period applicable.
2. Better fraud protection
When you use a credit card, you are essentially using the bank’s money. In case your credit card is compromised and used for fraudulent transactions, you can call the customer service helpline and immediately block your card.
Some banks may restrict your liability to a certain amount or till you report it, while others may be more flexible. The important thing is - since it is the bank’s money, you do not suffer an immediate loss and the bank usually reverses the charges later once they confirm there was no lapse on your part.
However, if your debit card is used for a fraudulent transaction, the money is instantly debited from your own bank account - and even if you report it to the bank, you could face a financial crunch while the bank completes their investigation.
3. Better purchase protection
After making a purchase with your credit card, if you find that a product or service was not up to the required standard or as promised, you can raise a dispute with your bank and request for a chargeback. Once the bank determines the validity of your request, the charges would be waived or reversed.
It is important to note here that if the amount has already been charged in the statement and you raise a dispute later, you should still make the payment by the due date. Not doing so at the time can lead to interest charges and also get reported to the bureau as a default/delayed payment, impacting your credit score. Pay first and let the bank reverse the transaction later.
However, as with fraudulent transactions, even if a dispute is raised on a debit card transaction, the money has already been debited from your savings account and getting it back could take some time, which could strain your finances.
4. Greater acceptability
Credit cards are universally accepted as a mode of payment, whether for domestic or international transactions, or for online/offline transactions. While acceptance could vary in case of specific card networks like American Express, Mastercard or Visa, most merchants will generally accept credit card payments.
On the other hand, debit cards may not be accepted for certain services or transactions, especially purchases in foreign currency, or even for recurring and subscription based payments, although this would vary across merchants.
5. Build your credit history and credit score
Saving the best for last - this is one of the most important advantages of a credit card over a debit card. Applying for and getting a credit card is the quickest way to have a credit score and build your credit history.
Using a credit card responsibly leads to a good credit score. This increases your chances of getting lower interest rates, faster approvals and higher credit limits on future credit products.
If you have a poor credit score and are looking to rebuild it, getting a secured credit card would help.
However, debit cards do not affect your credit score or credit history in any way.
Bottom line - based on the above, you should have at least one credit card. With disciplined usage, it can help in creating and building your credit score and history, especially if you’re new to credit (NTC).
With the OneScore app, you can improve your credit score using our AI-based Score Planner. If you’re NTC, you can use the simulator to get an estimation of your credit score.
Download OneScore now to check your CIBIL and Experian credit score for free, and also apply for OneCard credit card!