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The Difference Between Credit and Debit Cards

February 22, 2022

A woman makes an online purchase after learning about the credit card and debit card difference.
Some people think credit cards and debit cards are the same. But this is far from accurate! Make no mistake, there’s a big credit card and debit card difference. 

There are perks for using one type of card over another. While some people prefer a credit card for its specific perks, others like using a debit card for its benefits. Knowing their differences and how each one can benefit you is important. 

The Main Difference Between a Credit vs. Debit Card 

Debit and credit card features work different. When you use a debit card to make a purchase, your money is automatically debited from your checking account. As long as you have available funds in your account, no further actions are needed. 

However, when you use a credit card, you’re borrowing money to make a purchase. You’ll pay this borrowed money back later. At the end of each billing cycle, you receive a bill for the purchases you made plus any interest or fees. You’re responsible for paying it back. 

Each card may serve as a better payment option, depending on the situation. Both debit and credit cards can be used to make purchases and hold money for payment purposes. But the way these payments are processed will vary based on the card you use. 

The main details to remember are: 

  • Debit cards are linked to your checking account, so every time you make a purchase, the amount is automatically deducted from your account. 
  • Credit cards give you access to a line of credit that lets you borrow money for purchases and repay it later.

How Does a Credit Card Work? 

A credit card is a line of credit that allows you to borrow money when you need it. You can use this money to make purchases or make payments. Many credit cards also let you receive cash advances or make balance transfers. 

When you use your credit card, you’re expected to repay your lender the amount you borrowed from them along with any interest charges you possibly obtained.

Pros of Credit Cards

There are several positive reasons for using a credit card. Some of these include:

  • Most credit cards have features that allow you to set a spending limit. When you’re about to go over your spending limit, you can get an authorization notification to alert you. This can protect you from possible fraud if your card is lost or stolen.
  • Credit cards aid in building your credit history. 
  • Some credit cards may come with a rewards program. Rewards cards let you earn rewards or cashback on purchases made.
  • You can use a credit card as your “emergency fund” when in need of money you don’t have available in savings or checking.

Cons of Credit Cards

Of course, with the positive comes the negative. Some cons of credit cards include:

  • You can risk piling up credit card debt if you’re not carefully watching your balance and credit limit. 
  • If you don’t pay your balance in full and on time following every billing cycle, you’ll be charged interest on your established purchases.
  • You may be charged fees to have or use the credit card, depending on the lender.

When to Use a Credit Card 

So, when is using a credit card the best option? There are some specific situations where a credit card makes the most sense.

  • Protection from online charges: If you unknowingly make a purchase that exceeds your spending limit, you may receive an alert. Also, if your card is stolen and someone tries making a purchase, you may receive an alert to help protect you from potential fraudulent charges. 
  • Visa buyers protection: Visa offers purchase security for stolen or damaged items within a specific period. Purchase protection can save you money if an item you purchased is damaged or stolen because Visa will compensate you for your loss. 
  • Charges you can’t pay: If you unexpectedly can’t pay your bill, you can simply contact your lender to explain the situation. Many creditors are willing to work out an arrangement when you’re dealing with a financial emergency. 

How Does a Debit Card Work? 

A debit card is a payment method that’s used as an alternative to cash. With most financial institutions, you receive a debit card when you open a checking account with them. 

Debit cards are directly linked to your checking account and can be used whenever you make purchases. When you use your card, the purchase cost is automatically deducted from your available checking funds. This is the key credit card and debit card difference. 

Pros of Debit Cards

Benefits of debit cards:

  • Debit cards help keep your spending in check since you need money available in your checking account to make successful purchases.
  • You may be able to set up alerts to monitor your card use activity.
  • There are no interest charges on purchases.
  • You can withdraw cash from ATMs or get cash back during purchases.

Cons of Debit Cards

There are also some drawbacks with debit cards, including the following:

  • There is the possibility you can incur fees. These can include out-of-network ATM and overdraft fees, as well as fees for using a PIN during transactions at some retailers. 
  • A debit card doesn’t help to build a credit history.
  • You may be liable for fraudulent charges if Visa protection isn’t offered. 

When to Use a Debit Card 

As with a credit card, there are times when using a debit card has benefits. 

  • Spending limit control: Debit cards are a great choice when you want to keep your spending under a certain limit, based on available funds in your checking account. They’re especially convenient when you want to make smaller purchases.
  • Protection from annual fees: Unlike some credit cards, you don’t have to pay to keep your debit card activated.
  • No interest charges: Since your money is taken from your account immediately, you don’t accumulate a balance on which you have to pay interest like you would with a credit card.

Credit Card and Debit Card Difference: What’s Best for Your Account 

Now that you know the differences between credit cards and debit cards, you can decide which is better for you given your financial needs. Credit cards allow you to have funds when you need them, but you’ll have to pay it back along with any incurred interest or fees. Debit cards allow you to spend what you have available in your own account, without any benefits to your credit history. 

Many people prefer using credit cards due to their convenience and credit-building benefits. Here at Fibre Federal Credit Union, we like to make sure you’re aware of every fee you may face with credit cards from any lender. This way, not only will you be aware, but you’ll also be equipped for any challenge that comes your way.

Most Common Credit Card Fees Explained

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