What Is The Difference Between A Credit Card And Debit Card

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 9 minute read

It’s fantastic to have cash on hand, but it may be a pain at times. You can’t pay for something with cash on the internet, and you probably wouldn’t feel comfortable carrying around several thousand dollars in cash anyhow.

Credit cards and debit cards allow you to make purchases without ever touching cash. While they both accomplish a lot, there are enough variations between the two that they may be used in quite different contexts.

About Debit Cards

A debit card is a payment card linked to a checking or savings account at a financial institution. Money market and savings account debit cards are offered by several financial institutions.

Direct access to the associated account is enabled for debit card purchases. When you make a purchase at a store and pay with a debit card, the cash is taken straight out of your bank account.

Your debit card can also be used at ATMs to withdraw cash. To better serve their customers, many banks either maintain their own network of ATMs or are members of bigger networks. There will most likely be a withdrawal fee if you use an ATM that is not part of your bank’s network.

What is a Credit Card?

The purpose of a credit card is to provide convenient access to a loan or credit line that has been provided to the cardholder. Credit cards allow you to borrow money from a lender, whereas debit cards allow you to access your own money.

Credit cards must be applied for separately from a bank or other card provider, but debit cards are commonly included with any checking account. Your application will be evaluated based on your credit history and other financial data such as your income before a lender issues you a card.

If you have bad credit or can’t show you’ll be able to repay a loan, you may not be approved for a credit card.

If you are accepted, the lending institution will set your credit limit, which is the maximum amount you may borrow at any one moment. It’s possible to make purchases by charging them to a credit card and then borrowing the money from the credit card company.

Your card issuer will send you a bill every month. No interest will be charged if the balance is paid in full. You may also choose to pay a smaller amount than the total due. Interest on the unpaid amount will be charged if you do this.

Annual fees are a common feature of credit cards. Furthermore, they may provide benefits like credits for future purchases, free upgrades at hotels and airlines, and prizes for making purchases.

Important Characteristics

To avoid carrying about cash, you may use either a debit card or a credit card to make transactions. In order to know when to employ each, it is necessary to be familiar with these distinctions.

  1. Where Does the Money Come From?

You may make purchases fast and conveniently with either a debit card or a credit card. You may use them to withdraw money from an ATM, too.

Debit Cards 

With a debit card, you may quickly and easily withdraw cash from your bank account.
This has the potential to facilitate minimizing wasteful spending.

Having cash in your wallet provides you with the visual cue that your wallet is shrinking as you make purchases. When you make a transaction using a debit card, you may see the money leave your account immediately. This is a simple method for keeping tabs on your expenditures and preventing you from going overboard.

Credit Cards

When you make a purchase using a credit card, the card issuer essentially lends you money.
You may get a line of credit quickly and easily using a credit card. Applying for a loan, interacting with an underwriter, and waiting for the lender to disburse the cash might be a burden if you just need to borrow a modest amount of money.

Credit card holders have already been pre-approved for a loan up to their credit limit, so all they need to do to borrow money to make a purchase is swipe their card. Access to credit is helpful to have, but it comes with a risk owing to the high interest rates most credit cards have.

  1. Costs

Both debit and credit cards have fees associated with their use. Which card you use and how you use it might affect the fees and other expenditures you incur.

Costs of Debit Cards

In this regard, debit cards excel over credit cards because of the lower costs they normally impose. Furthermore, since you are spending your own money, you never have to worry about paying interest on debit card transactions.

Overdraft fees are one of the most typical penalties associated with using a debit card.
While debit cards aren’t intended to serve as lines of credit like credit cards, some financial institutions will nonetheless allow you to spend more than you have available. Overdrafting your account is the term for this situation.

If you only have $80 in your checking account but want to make a $100 purchase, the bank could let you do it. This results in an overdraft of $20, which triggers an error.

The cost charged by many financial institutions for this service effectively reduces your available funds. If the bank charges you $15 for going above your limit, your account balance will be -$35. To reset your account balance to zero, you’ll need to deposit $35.

Overdraft fees may quickly add up, so if your checking account balance is often low, you should keep a tight eye on it. If you want to avoid overdraft penalties altogether, you may always talk to your bank about canceling overdraft service. If you try to make a purchase for $100 but only have $80 in your account, the transaction will be refused unless you have overdraft protection.

With a debit card, the only other cost you’ll usually incur is at an ATM. If you use an ATM that is not part of your bank’s network, you may incur fees.

Credit Card Fees

The charges associated with credit cards may add up quickly, depending on both the type of card you use and how you put it to good use.

The annual fee is one of the most typical charges, and it’s a flat rate you’ll have to pay each year your card is active. Many credit cards waive this cost, but premium rewards cards sometimes have hefty annual rates. Premium cards can charge as much as $500 a year in fees. You’ll be wasting your money on these cards if you don’t use the benefits they provide.

In some instances, the usage of a credit card might cost you money. Debit cards are free to use for peer-to-peer transactions like those made with Venmo, but credit cards incur fees.
Interest must also be included in addition to these costs.

You may use a credit card to get a loan. It’s inevitable that when you borrow money, you’ll have to pay interest. Also, borrowing money with a credit card is one of the most costly options available to consumers today.

It’s not uncommon for credit cards to charge annual percentage rates of interest of 10%, 15%, 20%, or even more. This won’t be a problem if you always pay off your credit card in full before the due date. However, you may end up paying a lot of interest if you carry a load for even a couple of months a year.

  1. How to Obtain One

Payment methods like credit cards and debit cards can simplify the process of making major purchases, so you should consider getting one if you don’t already have one. In addition, they make it easier to shop online. It’s easier to get a debit card than a credit card because of the way they’re issued.

How to Apply for a Debit Card

These days, most consumers can get a debit card in a matter of minutes. If you have a checking account, you probably already have a debit card. The card is available to everyone without further action on your part. Soon after you create an account and make your first deposit, you’ll get it in the mail.

If you don’t qualify for a credit card because of your low income or credit score, you may probably acquire a debit card with no trouble.

How to Apply for a Credit Card

A credit card is something for which you must apply. To apply for a credit card, you will need to fill out a loan application because credit cards are a means of borrowing money.

Credit card issuers check your credit and finances when you apply for a card to see if you’re reliable with repayment. Acceptance for a credit card might be challenging if the credit agencies do not have a credit record for you or if your credit score is low. The same holds true if your income fluctuates often. In order to qualify, you must establish credit and provide proof of income.

  1. Fraud Protection

The prevalence of online fraud is alarming. Your credit card will likely be the target of fraud sooner rather than later. However, the fraud prevention features of credit cards and debit cards operate somewhat differently.

Protection Against Debit Card Fraud

When you make a transaction with a debit card, most financial institutions will safeguard you from fraudulent charges. Most banks will not hold you responsible for fraudulent charges made using stolen credit card information.

The issue here is that whomever has your debit card also has access to your bank account. Before you notice anything is wrong and notify your bank, the scammer might spend up to $500 of your money.

It may take some time from the moment you disclose the scam before you receive reimbursement from the bank for your losses. The funds will be permanently lost at that period. Ultimately, if you can’t afford to go without the funds for a lengthy period of time, the fraud protection may be too sluggish to make a difference until you’re in dire difficulties financially.

Protection Against Credit Card Fraud

Like debit cards, credit cards provide some kind of security against fraudulent use. There is, however, a significant distinction.

Your bank account will not be immediately accessible if your credit card information is stolen. That implies the fraudster may open lines of credit in your name without worrying about your funds. Credit card fraud recovery is sometimes simpler than debit card fraud recovery since you won’t lose all of your money while working with your card issuer to fix the issue.


People who would want to gain something in return for their spending may be interested in the rewards and other advantages that come with using certain credit cards and debit cards.

Debit Card Rewards

Debit cards, typically, do not come with perks like cash back or frequent flyer miles. That’s why it’s not as beneficial to use a debit card as a credit card.

On the other hand, this pattern might soon be shifting. Some financial institutions, notably online banks and fintech firms, have begun providing extra incentives for customers to use their debit cards, such as cash back or other prizes.

Credit Card Rewards

Earning rewards is a major incentive for using a credit card. Credit cards that provide bonuses come in a wide variety. Not all loyalty programs are the same; some only give you cash back, while others also give you points, miles, or points at a hotel. Even if you don’t make the most of your credit card’s rewards program, making even the most minimal purchases on a monthly basis might still net you valuable rewards.

While some cash-back cards may only provide 1% back on most transactions, others may offer 5% back or more on some categories of purchases.

To give just one example, the American Express Blue Cash Preferred offers 6% cash back on purchases made at grocery stores. It’s not a little amount of money if you spend $5,000 a year on food and receive $300 back.

You can obtain free tickets for your next vacation, free nights at a nearby hotel, or other perks only for making purchases you were planning to make anyway, depending on the credit card you use. An astute cardholder will utilize various cards for the purposes for which they are most suited, so maximizing benefits.

Bottom Line

Spending money is made simple by having the option to use either a debit or credit card, rather than carrying about a significant quantity of cash. Just swipe your card and you’re good to go when making purchases.

Credit cards allow you to borrow money from a lender, whereas debit cards allow you to easily access your own money. Credit cards, in general, come with several advantages, such as cash back and legal safeguards for cardholders. But doing so might lead you into a mountain of credit card debt. Most people will find that having both a credit card and a debit card on hand is convenient.

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