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Credit Cards Vs. Debit Cards

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Credit Cards Vs. Debit Cards

Credit Cards vs. Debit Cards

What Is a Credit Card?

Credit Cards Vs. Debit Cards – A credit card is a card which is issued by a bank or other financial institutions. It carries a 16 digit fixed number. Using a credit card, the card holder can withdraw money from the ATM or bank. He or she can also do shopping, pay bills, buy online subscriptions using a valid credit card. The customer can also borrow money from the bank within a certain limit. But the condition is that he has to pay the money back with interest.

What Is a Debit Card?

Debit cards can access its user accounts directly. A credit card is a card through which you can pay bills from your account. It deducts money from your account and you don’t need to carry so much cash together.

Though debit card does not offer the loan policy like debit card but it is a popular electronic medium of transaction. 

Although credit and debit cards have some similar features too. The good thing is that, after payment you will receive notifications and after every transaction, you will receive a confirmation message. 

About Credit and Debit Card

Credit card and debit card both contain a unique 16 digit number of each, EMV chips, magnetic stripes and expiration dates. The key difference is that you can borrow money from banks or card issuer companies up to a certain limit using a credit card but debit card does not provide this opportunity.

You probably own a credit card and a debit card and have experienced using both of them. Which one you will prefer to choose is actually dependent on you.You have to decide which one you are comfortable with. 

Credit Cards Vs. Debit Cards

Credit Cards vs. Debit Cards

Categories of issued credit card are- 

1. Standard Credit Card

Standard credit cards provide a line of credits for their users. Using those credits a card holder can buy things, transfer balance and advance cash without any annual fee.

2. Premium Credit Card

On the other hand, premium cards charge higher annual fee but their access is wider than the standard one. Easily can use premium cards in special events, lounge, airport, international clubs and organizations.

3. Reward Cards

Rewards cards are unique because they offer rewards, points and cash back opportunities after you spend from the card. You can use them for traveling, hotel booking, food and others and enjoy rewards after every transaction.

4. Balance Transfer Credit Card

It charges a low amount as introductory interest rates for balance transfer from another credit card.

5. Secured Credit Card

Secured cards need a primary cash deposit done by the issuer.

6. Charge cards

Charge cards don’t have any spending limits but you can’t carry unpaid balance for a long time. You have to pay the dues on time. 

Facilities of using a credit card

Credit card holders enjoy many facilities which are not available for debit card users.  They enjoy

Reap cash

Discount on purchase

Travel points

Bonus on yearly spending

Several Offers and so on.

While taking reward cards, verify the expiry date and available options you are going to get.

You will get better consumer protection using a credit card. Compared to a debit card linked to a bank account, credit gives better protection to your finances from frauds. Many newest credit cards offer more opportunity and don’t charge any annual fee. So, your costs will become less.

Pros or advantages of Using Credit Cards

Yes, credit cards offer certain opportunities. Let’s look at the pros and cons of credit cards.

1. You can see your credit history from the credit report. This includes all records  like on time payment, low credit utilization, money spending data, monthly and yearly spending rate, late payment, due and others.

To calculate your credit scores, your credit report information is used. Your score will be good if you pay on time and don’t go beyond your credit limit.

There are apps through which credit card companies offer free score monetization and you can see your spending limits.

2. Credit card users can dispute unauthorized purchases or goods that are lost and become damaged before delivery. 

3. Credit card users get a refund up to $50 after reporting if the card is lost. 

4. Credit cards provide a waiver for collisions if you rent a car. Even after using a debit card, some car rental companies also want credit card information if you have it as a backup.

Cons and disadvantages of Using Credit Cards

Drawbacks of credit cards include debt, credit score effect, cost and so on. 

Spending Can Lead to Debt

Credit card spending can lead you to debt. How? Since you are spending the bank’s money but not your own. So, you have to pay the bill with the required interest rate. At least, you have to repay a certain amount every month.

Still, depending on the spending rate, your debt can be increased over time. Balancing multiple credit cards is tough in that sense, oftentimes it becomes difficult to pay the monthly budget. 

Credit Score Impacts

Pay the bill on time and keeping your credit card balance low impacts your credit score. Although paying the bill late, closing down older accounts, exceeding the credit limit more than once can impact your credit score.

To solve this, be aware and set up notification for due dates and checking balance. So that you never forget to pay the bill and exceed your limit. 

Interest and Fees

Credit card usually provides you with a short term loan with low interest. This is actually calculated according to annual percentage. The more you spend, the higher interest rate will be shown and you have to pay it back on a monthly basis. 

You should be careful about the annual fee, foreign transaction fee, balance transfer charge, cash- advance fee, return payment fee and others. 

The more benefits and more offers you enjoy or you will get, the higher annual fee you have to pay. 

Let’s talk about debit cards now.

Types of debit card- 

1. Standard credit cards normally draw on your bank account.

2.  Electronic benefits transfer cards are given by state and federal agencies. Users can use their benefits to make purchases using EBT cards. 

3. Prepaid card is a type of debit card which should be preloaded and users can use and making online purchases using this certain amount of money. So, there will be a fixed limit of spending and no risk of running into debt. 

Debit cards do not cost so many fees but on the contrary credit cards have annual fee, over limit charge, late fee, monthly interest and there is a wide chance to overdraft the fee and crossing limit. Interest rate with every bill repaid is another cost with credit cards.

How Debit Card Works

Pros or benefit of Using Debit Cards

1. Upside and downside opportunity

Debit cards can have both upsides and downsides just like credit cards.

2. No risk of Debt

As I already have mentioned, you can only use those amounts of money which already exist in your account. Debit card does not give you any loan. So, you will be on your limit and there will be no risk of debt

3. Fraud Protection

Debit cards also provide fraud protection. After reporting, the bank will confirm whether your card is used by an unauthorized person. If so, you can block your debit card and apply for a new one. 

4. No Annual Fee

You don’t have to pay any annual fee if you use debit cards. Also, there is no withdrawal charge, late fee or interest rate to pay with the usage of debit cards. 

Cons of Using Debit Cards

Like credit cards, there are some cons of using debit cards too. 

  1. No Rewards

Debit cards originally do not offer any reward opportunity. Although rewards can save your money. For points, you have to have a reward checking account that will track your redeem. 

  1. No Build Credit

Building a good credit means you can repay the loan and you are a trustworthy customer. This is very helpful for business profiles. It will show whether you have too much loan to pay. But there is no build credit opportunity with debit cards because they don’t pay you loans with interest. 

  1. Fees

Debit cards also have some relevant fees.

  • Maintenance fee
  • Return item fee
  • Foreign ATM fee and others.

Key Differences

If your bank account is empty, you can’t use a debit card. In this case, if you have overdraft protection on your card, you can use it. Later, when your account has money, it will be deducted and adjusted with your spending. 

Note that, when you swipe a debit card, the money is directly taken out from your connected and active bank account. On the contrary, if you swipe a credit card, it will give you a loan and you have to pay the bill later, on a monthly basis. 

Remember, a debit card won’t impact your credit score. You can spend on limits because you are allowed to spend only those amounts available to your account. But credit cards often impact your credit score and it becomes low, if you don’t use the credit cards responsively and don’t pay the bill on time. 

A debit card is a tool that you can use instead of a check and you don’t need to carry lots of cash together. Although, if you are using a credit card, you don’t need to carry a lot of cash either. Between credit and debit card, which one is better, totally depends on your usage, management skill and comfort zone. 

If someone steals your debit card and takes out your account’s money using the card, it seems difficult to get the money back. But if someone steals your credit card, it is quite easier to refund the money after reporting. The important thing is that you have to report immediately after your card is stolen or lost to your bank or credit card issuer company. 

Special Considerations

If a debit card user decides to take overdraft protection to avoid embarrassment and the risks after bounced check or declined debit transaction type problems occur.  In this situation, the difference between debit and non- debit facilities becomes quite the same. If you withdraw money beyond your account balance, the bank pays a handsome amount to attract the customer. Then the customer has to repay the bill with the interest rate within a certain time period. It also applies extra charges if you somehow become late to pay the bill. 

Warning:  You may fall into debt after taking overdraft protection and use it with your debit card and go beyond your limitations. 

There is a type of debit card which is prepaid. That means these cards should be pre- loaded and you can use them just like a regular debit card and they are not linked to your personal bank account. 

Debit Card vs. Credit Card Example

Let’s look at a practical example of debit and credit card usage. After reading the example, you may connect those previous theoretical discussions to it.

Suppose, there are two customers buying televisions from a local store and customer A is using credit card and customer B is using debit card. Let’s see what happens.

After customer B swipes his debit card, his bank immediately holds the price $350 from his account and he will receive a message on his phone. Later within 2-3 working days, the store will send the transaction details to the bank and claim that they owned the fund. It will later be given to their balance account. 

On the other hand, customer A swipes his credit card and the credit card company adds the purchase price $350 to the outstanding balance. The customer has to repay the bill with required interest rate until the next billing date. 

What’s the Main Difference Between a Debit Card and a Credit Card?

The main difference between a credit card and a debit card is that your debit card is directly connected to your bank account and it completes the transaction within 24 hours. But a credit card immediately completes the transaction and you have to repay it at the end of the month to your bank or credit card company. 

Which Is Better, a Credit Card or a Debit Card?

It actually depends on the user. When you are going to buy something very expensive and larger, you can use a credit card. But keep in mind that you have to repay the bill. 

Now, suppose you have less cases. You can use your debit card to pay the bill and it will directly deduct the money from your account. It is less risky because you don’t have to run into debt.

Although credit cards are useful for making emergency payments at home and abroad. It will not deduct money from your bank. Even most hotels, travel agencies, and tour companies accept credit cards only. If you have a visa debit card or master debit card, you can use your debit card like a credit card. 

Some related discussions

Can you earn rewards with a debit card?

No. rewards are mainly offered by credit card companies. Rewards are mainly given based on points, credit score and pay history. 

Do all credit cards charge interest?

Yes, all credit cards charge a certain amount of interest when you are going to pay the bill. This interest rate is based on an annual percentage. But it is better to pay all the dues and clear them every month. 

Frequently Asked Questions (FAQs)

How can I tell the difference between a debit card and a credit card?

Yes, credit and debit cards almost look the same. But it is written in one corner above the card number. If it is written “Debit”, it is a debit card and if it is written “Credit”, it is a credit card. 

Is it better to use a debit card or credit card for certain transactions?

There are certain companies which only accept credit card payments. It is safe because it does not get direct access to your bank account. You can pay the bill later.  But debit cards are useful because they usually limit your spending on limits. 

Can I use a debit card without a PIN?

Typically, no. Every debit card contains a personal identification number (PIN) for extra security. Never use your pin number to someone else. Keep it private and while making transactions, type it very carefully. Because three times wrong pin dial can block your card. 

The Bottom Line

Credit and debit cards look alike but their features, advantages and facilities are different. Which one is better? it totally depended on the customer’s preferences. Both types of cards have positive and negative sides. Choose your preferred card that you can handle wisely. 

Share your opinion. Which one do you like most? Credit or debit card? Why?

Do you understand the difference between debit and credit card? Do you have any questions regarding this? Please let us know through your comments. We will definitely love to answer. 

Thank you for being with us. 

Article resource

Consumer.gov. “Using Debit Cards.” Accessed Feb. 15, 2022.

Consumer.gov. “Using Credit.” Accessed Feb. 15, 2022.

FDIC. “When and Why Your Credit Card Interest Rate Can Go Up.” Accessed Feb. 15, 2022.

Discover. “Discover Will No Longer Require Signatures at Checkout.” Accessed Feb. 15, 2022.

Mastercard. “Mastercard Retires Customer Signatures.” Accessed Feb. 15, 2022.

Michigan Department of Attorney General. “Credit Card vs. Debit Card—Know the Difference.” Accessed Feb. 15, 2022.

Enterprise. “What Forms of Payment Are Accepted for Renting a Car?” Click “I will be renting at a non-airport location in the United States.” Accessed Feb. 15, 2022.

Federal Trade Commission Consumer Information. “Lost or Stolen Credit, ATM, and Debit Cards.” Accessed Feb. 15, 2022.

Federal Trade Commission. “Disputing Credit Card Charges.” Accessed Feb. 15, 2022.

xperian. “What Is a Credit Card?”

Experian. “What Is Credit Card Purchase Protection?”

Federal Trade Commission, Consumer Information. “Lost or Stolen Credit, ATM, and Debit Cards.”

Federal Trade Commission, Consumer Information. “Disputing Credit Card Charges.”

Federal Trade Commission, Consumer Information. “What to Do If You’re Billed for Things You Never Got, or You Get Unordered Products.”

Visa. “Auto Rental Collision Damage Waiver.”

Experian. “What’s the Difference Between Debit Cards and Credit Cards?”

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