Your debit card may be convenient, but paying with it isn’t always a smart move.

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You may not give much thought to when to use a credit card vs. your debit card. After all, you can typically use either to pay for what you need. But did you know that there are some big differences in how each of these cards works, especially when it comes to fraud protection and how soon you’re responsible for purchase amounts?

For example, with a debit card, the funds are immediately withdrawn from your checking or another bank account linked to the card. Any time you use your credit card, however, you have some time to pay off the purchase when you receive your credit card statement.

But there are also other important differences between these two convenient forms of payment. So, how can you know when it’s best to use a credit card vs. a debit card?

Here are three times paying with a credit card is smarter than using your debit card.

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Checking into a hotel

When you check into a hotel, the clerk usually asks for a credit card or debit card to serve as a deposit on the room during your stay. The card generally covers room rates and other incidentals such as room service or similar charges. However, you could regret using your debit card instead of a credit card for the deposit.

That’s because when you pay with a debit card, the hotel charges the bank account linked with the card immediately for the amount. So, you’ll have less money available to spend on your vacation or business trip. On the other hand, when you use a credit card for the deposit, the amount is simply a hold on your card’s available funds, not a bill that you must pay right away.

No matter which type of card you use, you’ll get your deposit back after checkout. But using a debit card instead of a credit card could tie up money you need or even cause an overdraft, along with overdraft charges.

Find out: 5 Things to Look for in a Travel Rewards Credit Card

Building credit

Using your credit card can help you build or improve your credit if you pay the monthly amount due on time. Credit card companies report credit card account information to all three major credit bureaus (Experian, Transunion and Expedia), so a positive payment history can build a solid credit history or improve your current credit score.

When you use a debit card, however, those transactions aren’t reported to credit bureaus, since the money is withdrawn immediately. That means there’s no positive or negative payment history to report to major credit bureaus. In other words, both types of cards serve the same purpose, but only your credit card counts on your credit report.

Find out: How to Build Credit in 5 Simple Steps Using Today’s Tech

Shopping online

When you make an online purchase, you may simply grab whichever card is nearby, but it’s smarter to pay for online purchases with your credit card instead of a debit card. Both will work when shopping online, but the two cards have a huge difference between them when it comes to fraud protection if the card is compromised or stolen.

If someone makes unauthorized purchases on your credit card, you’re only liable for up to $50 of the fraudulent transaction. When someone fraudulently uses your debit card, you could be on the hook for a lot more: Up to $500 or even more if you wait more than 60 days to report the card as lost or stolen.

Find out: Are Store Credit Cards Really Worth It?

When should I use a debit vs. a credit card?

Sometimes, using your debit card instead of a credit card is better. For example, if you need cash from an ATM, you won’t pay any fees if you use an ATM linked with your debit card’s bank. Take out a cash advance with your credit card, however, and you’ll pay cash advance fees on top of ATM fees and a higher interest rate on the cash advance transaction.

If you already have a lot of credit card debt, you may also want to use your debit card for most purchases until you pay down the credit card balance.

Find out: Credit Card Fees and How to Avoid Them

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

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