Why do I Have to Pay More to Use my Credit Card than to Use my Debit Card?

They look alike. They're both little rectangles of colored plastic bearing the logo of a major credit card company. They have an embedded Chip that requires you to enter a PIN in order to authorize their use. You can use them in exactly the same way at the till - just swipe or tap, enter your PIN and you're through. So why does it cost you more to use a credit card than a debit card?

The answer is a simple one: even though they look and act alike, there is one major difference between your debit card and a credit card. When you pay for a purchase or service with a debit card, you are paying with your own money, money that you have already earned and put into your banking account. When you pay with a credit card UK card companies are lending you their money to make your purchase, and you are paying them for the privilege of borrowing from them in the form of interest charges and other fees. When you apply for a credit card, you promise to repay the amount that you charge on your card along with any applicable fees and charges that the credit card company sees fit to levy on you.

It also costs the merchant more when you pay for your purchases with a credit card. UK merchants pay a ?transaction fee' on every purchase made from their shops using a credit card. When you pay with a debit card, the money is transferred directly from your bank account to the merchant. When you use a credit card instead, the merchant must wait for payment from the credit card company.

Given that it costs more to pay for purchases with a credit card than with a debit card, it would make sense to use a debit card for your purchases if you have the cash on hand - but there are some protections offered when you use a credit card that you don't have when you pay with cash or a debit card. If you read the fine print carefully when you apply for a credit card, you'll note several protections that you don't get with cash:

• Your liability for fraudulent use of your credit card is severely limited. In most cases, if your credit card is used without your authorization, you'll owe nothing at all.
  
• When you apply for a credit card, you also get the ability to dispute charges to your card. If you pay cash for a purchase and the item proves faulty, you may be in for quite a fight to get your cash back. In the same situation, you can dispute the credit card charge BEFORE you pay for it, and the credit card company will fight for you.
  
• Many credit card companies offer insurance on purchases made with their card - a protection you won't get with a debit card. That alone may make it worthwhile to charge a larger purchase even if you have the cash on hand, and then pay the credit card account promptly.

If you're ready to apply for a credit card and move up from using your debit card to the greater protections afforded credit card UK users, you'll find all the information you need to make an informed choice at moneyeverything.com. They list all the details on credit card UK offers and allows you to compare credit card terms to get the best credit card for your uses.