Differences Between a Credit and Debit Card You Need to Know

Choosing the right card can be tricky. With tons of credit and debit card options out there, it’s hard to figure out what might be the best option for you. Here are all differences between a credit and debit card and some tips to help you make an educated choice.

Credit vs. Debit Card

First and foremost, it’s important to understand the main differences between a credit and debit card. It’s easy to confuse the two; they look similar, feel the same, and both function at the grocery store or the mall. However, the main difference is that while a debit card takes money directly from your bank account, a credit card is charged to what’s known as your credit line. This is essentially the amount of money that you can charge to your card.

What is a credit card?

A credit card essentially allows you to borrow money from a lender. Once you open a credit card, you’ll receive a credit limit. This is the maximum amount of money you can borrow to make purchases every month. It’s based on a range of factors including income, but most importantly your credit history. Anytime you make a purchase it will be charged to your line of credit which you’re liable to pay for at a later date. Typically, payments are interested free, however, if you forget to make a payment you may be responsible for a late fee. Usually, this will happen if you fail to pay within 30 days.

In most cases, you need to have a social security number and be at least 18 years old to qualify for a credit card.  If you’re 18 years old and lack a valid source of independent income or assets, you’ll likely need a parent or guardian to co-sign. Otherwise, you’ll need to wait until you’re 21 years old.  Reported income in general is how banks decide whether you’re likely to repay debt as well as how large your credit line should be.

Student Credit Card

If you’re a college student, a student credit card is another option. Some of the best cards available may even offer a $0 annual fee and 1% cashback rewards.  You can also opt for a secured credit card. This essentially requires you to make a deposit before opening an account, but it is another good option for people with poor credit or those just starting out.

According to MoneyUnder30, most credit card companies require applicants to have a credit score of 700 or more to qualify. Many of the better cards offers will typically also require longer credit history, while credit card companies that accept lower credit scores may have higher interest rates.

What is a debit card?

As mentioned, a debit card is linked directly to your bank or checking account. Unlike a credit card, where you borrow money on credit, with a debit card, the money is pulled directly from your account. Most debit cards function with a PIN number which you’ll input anytime you take money out of an ATM or make a purchase. One of the best perks about a debit card is that it does not affect your credit score — that three-digit number that has the capacity to derail or assist with your financial wellbeing.

There’s also no need to worry about late payments because the money is immediately taken from your account as long as you keep a running balance. If you’re out of funds, your card will simply be declined. Anytime you use a debit card, the bank puts a hold on the amount spent and money will either be deducted immediately or within a few days.

What is the best option for me?

There are a number of factors to take into account when choosing between a credit or debit card. Here are some of the things to consider when making your decision:

Are you a chronic overspender?

If you tend to overspend, you might want to consider a debit card. One of the perks of a debit card is that you can only spend what’s in your bank account which essentially prevents you from going over your limit or racking up debt. With a credit card, you can spend up to your allotted line even if you don’t have that available in your account because your card is not directly linked. This makes it easy to go over budget but could also lead to dreaded debt.  Some debit cards also have prepaid options, which allow you to load a fixed amount of money on your card.

Are you trying to build credit?

If this is the case, definitely go with a credit card. Building your credit and maintaining a good credit score can help you get perks like better interest rates and loans in the long run. As long as you pay your bills on time, you should be a good shape. They also offer reward programs and great incentives like cashback options or airline miles. This is definitely something to consider, although your financial wellbeing and future should take center stage when opting for a credit card.

Other things to consider:


With any card, fraud or identity theft are always a risk. However, which card you have might dictate how much of your money you get back. This is because how much you are liable to pay in the event of identity theft differs. If someone uses your debit card and you report it missing or stolen within two business days, you’ll only be liable for up to $50. Your maximum loss increases to $500 if you wait more than two days after learning about the theft but less than 60 days after receiving your statement.

With a debit card, the amount you’re liable for increases the longer you wait and could mean you lose it all if you wait more than 60 days after getting your statement to report the theft. However, thanks to the Fair Credit Billing Act, you’re only liable for $50 when your card is stolen. Theft obviously isn’t at the top of our minds when settling on a card, but it is definitely something to consider when thinking about which option to choose.

Interest Rates

When choosing a credit card, consider interest rates and always read the fine print. The average credit card interest rate for June 2020 was a little over 20 percent, according to the balance. Some credit cards offer zero percent interest for the first few billing cycles.

Interest rates can also lead to hefty charges if you pay late. This offers a way for the lender to make money off of their customers. Ultimately, the better your credit score, the lower your interest rates.

To see some of the perks you can get with a credit card, check out this story on some of the best sign-up bonuses.







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