Why are credit cards preferred in the US?

Question

Where I'm from, credit cards are common, but they're not considered the main daily use-case, as opposed to debit cards.
What are practical reasons credit cards are preferred over debit cards in the US?

Answer 1

There are several reasons why credit cards are popular in the US:

1. They are safer--you basically never pay for fraud or theft, even in terms of convenience
2. They tend to offer rewards
3. You don't have to worry at purchase time about your account balance
4. They help build your credit rating
5. They have other perks like offering free insurance on cars rented with them
6. You can easily halt or reverse a credit card payment to a vendor that is not behaving well (I guess that's the fraud side)
7. They are aggressively pushed by banks (who make money on them)

On the other hand, debit cards do not have any of these going for them. A debit card doesn't make much money for the bank unless you overdraw or something, so banks don't have incentive to push you to use them as much. As a result they don't offer rewards other benefits.

Some people say the ability to spend more than you have is a downside of a credit card. But it's really an upside. The behavior of doing that when it isn't needed is bad, but that's not the card's fault, it's the users'. You can get a credit card with a very small limit if this is an issue for you.

The question I find interesting is why debit cards are more popular in your home country. I can't think of any advantage they offer besides free cash back. But most people in the US don't use cash much either. I have to think in your home country the banks have a different revenue model or perhaps your country isn't as eager to offer tons of easy credit to everyone as the US is.

Answer 2

For me, it is mostly for the fraud protection.

If I have a debit card and someone makes a fraudulent charge the money is removed from my bank account. From my understanding, I can then file a fraud complaint with the bank to recover my money. However, for some period of time, the money is missing from my bank account. I've heard conflicting stories of money being returned quickly while the complaint is undergoing investigation as well as money being tied up for several days/weeks. It may depend on the bank.

With a credit card, it is the banks money that is tied up.

Answer 3

There are two things I can think of that might be different in other countries:

• Until 2013, American Express, Visa and MasterCard prevented businesses from charging extra for credit card usage, and credit card surcharges still illegal in several states. Since credit card companies add a surcharge to credit card purchases, and merchants can't pass that onto credit card users, they just make everyone pay extra instead. Since everyone gets charged the credit card surcharge, you might as well use a credit card and recoup some of that via "rewards" points.

• Almost all credit cards here have grace periods, where you won't be charged interest if you pay back your loans in full within some period of time (at least 21 days). This makes credit cards attractive to people who don't need a loan, but like the convenience that credit cards provide (not carrying cash, extra insurance, better fraud protection). Apparently grace periods aren't required by law here, so this might be common in other countries as well.

Answer 4

Personally, I use my credit cards for everything because I get reward points (or, cash back, depending on the card), and I build credit history.

I've had credit cards since I was 18 (now 22), and my credit score is in the higher end 700s which I'm told is pretty good for my age. Additionally, since I put my rent and large purchases on my credit card, I have a lot of reward points. I use these to buy things I wouldn't normally buy to try them out and see if they bring any value into my life. If not, I didn't really lose anything, but I have found value in some of those things.

I realize most of this is gamification and consumerism at play, but getting that extra little thing once in a while for "free" which is pretty nice.

Answer 5

Your question is based on a false premise.

Debit cards are more popular in the US than credit cards are.

Indeed it seems to be the non-US part of the world that is big in credit cards. See here for example

Answer 6

1. Protection from fraudulent charges - If someone steals your card, you will not be liable for fraudulent charges. Call the bank, tell them your card is compromised. They will cancel it and send you a new one. You are still protected if you used a debit card, but it is generally more difficult to reverse fraud.
2. Charge-backs - If a merchant sells you defective merchandise and refuses to give you a refund, you can have the credit card company issue a chargeback. If you had used cash/debit, you probably would have been out of luck.
3. Extended warranties - Many cards will extend warranties on items you purchase, often by a year.
4. Rewards - Most cards offer rewards for using them, often in the form of points you can use to spend on travel, or straight up cash.
5. Sign-up bonuses - Many cards will give you sign up bonuses if you spend a certain amount within the first few months of opening it.
6. Hold on to your money for longer - Even if your card isn't in an introductory 0% interest period, you can hold off on paying for a while before interest will accrue. Once your statement is available, you typically have a month or so before the charges on that statement actually accrue interest. This means you can hold on to your money longer if you need to.
7. Free credit reports - Some cards give you a real monthly credit score for free. An example of this is the Discover IT card.
8. Builds your credit history - You may want to apply for a mortgage or car loan in the future. Having a good payment history on your credit cards will help you get approved for these big loans and get a good interest rate.

Answer 7

The real reason credit cards are so popular in the US is that Americans are lazy and broke, and the credit card companies know how to market to that.

Have you ever heard of the $30k millionaires? These were individuals that purchased as if they were some of the wealthy elite, but had no real money to back it up. American society has pushed the idea of "living on credit" for quite some time now. An idea that is even furthered by watching the US government operate solely on credit. (Raise the debt ceiling much?) Live in America for more than six months and you will be bombarded with "Pre-Approved Deals" with low introductory rates that are designed to sucker the average consumer into opening multiple accounts that they don't need. Then, they try and get you to carry a balance by allowing low minimum payments that could take in the neighborhood of 20 years to pay off, depending on carried balance. This in turn pads the credit companies' pockets with all of the interest you now pay on the account. The few truly wealthy Americans do not purchase on credit.

Answer 8

Credit card fraud protection (by law), credit card cash back programs (provided by most CC issuers), and debit card fees (commonly imposed by the merchant).

The crux is that with CC transactions, a small percentage is remitted to the issuing bank. Since the banks are already making money hand over fist on CC's, they incentivize people to use them.

CC security is also lax because the merchant is responsible for fraudulent charges instead of the bank. If the merchant fails to check a signature, they are held liable for all charges if the card holder reports a fraudulent transaction.