Have you ever felt confused between a credit card and a debit card? It’s easy to understand why, as debit cards and credit cards are accepted in many of the same places. They both provide convenience and eliminate the need to carry cash. They even look similar.
What is a debit card?
Debit cards offer the convenience of a credit card but work differently. Debit cards pull money directly from your checking account when you make a purchase. They do this by placing a hold on the purchase amount. The merchant then submits the transaction to their bank, and it gets transferred to the merchant’s account. This can take a few days to happen, and the hold may be released before the transaction occurs.
It’s important to maintain a steady balance in your checking account to avoid accidentally withdrawing more money than you have. You can arrange with your bank to cover overdrafts, but the charge will be declined if you do not have enough funds.
You will be provided with a Personal Identification Number (PIN) to use with your debit card in stores or ATMs. However, you can also use a debit card without a PIN at most merchants. You will sign the receipt as you would with a credit card. Here are some other facts related to debit cards:
- You will not pay interest on your purchases.
- Your credit history will not be affected by spending with a debit card.
- The amount will be deducted from your account almost immediately when paying with a debit card.
What is a credit card?
A credit card is a card that allows you to borrow money from a line of credit, also known as the credit limit on the card. The card is used for basic transactions, which will appear on your bill; the issuing bank pays the amount to the merchant, and later, when you receive your bill, you will pay the amount back to the issuing bank.
Interest will be charged on your purchases if you carry a balance from month to month. Credit cards typically have high-interest rates compared to most loans, and your credit card balance and payment history can affect your credit score.
It’s important to pay on time and in full to avoid interest, late fees, and to maintain or even improve your credit score.
Here are some other facts about credit cards:
- The bank determines your credit limit based on your credit history.
- Generally, you will no longer need to sign credit card purchases in person.
- You will be charged interest on your purchases if you do not pay them by the due date and do not have a promotional 0% interest rate.
Debit cards vs. credit cards
Debit cards make it easier to avoid overspending because you are limited to the available amount in your checking account only.
With a credit card, you risk spending more than you can afford. Just because your credit limit is $1,000 doesn’t mean you can afford that level of spending in your monthly budget.
Additionally, debit cards provide the same convenience as credit cards without the need to borrow money or pay interest or fees on your purchases. Choosing a debit card is great for managing your money and helping you live within your means.
On the other hand, some credit cards provide additional insurance on purchases and may make it easier to request refunds or returns.
It is important to read your credit card disclosure information carefully to understand the benefits available.
Finally, credit cards can help cover emergency expenses, allowing you time to pay off your card before interest is charged on your purchases. This safety net can be useful if you find yourself needing to pay for something significant before a paycheck arrives, but beware: relying on credit for emergency spending can put a costly burden on you if you cannot pay it off in full before the due date. The best solution is to keep an emergency fund on hand if you have the resources to do so.
Choosing
The Best Card for the Situation
When trying to decide whether to use a credit card or a debit card, you need to be honest with yourself about your ability to handle credit.
If you have spending issues, it’s best to use the debit card as much as possible to prevent yourself from falling into credit card debt.
Choosing the best card to use also depends on the purchase. Some car rental companies and hotels make it difficult or at least inconvenient to use a debit card. For example, non-airport locations may require utility bills or personal references or pay stubs or other proof of ability to pay before accepting your reservation. You may find that using a credit card is less cumbersome.
Using a credit card may also be the better option if you want to take advantage of credit card rewards programs. But this system only works in your favor if you pay off the balance in full each month.
If you’re trying to build your credit score, choose to use a credit card regularly. Making purchases and paying the bill on time will create a record of responsible and creditworthy behavior, which is reported to credit bureaus and shows up on your credit report.
Fraud Protection
Whether you choose a debit card or a credit card, identity theft and fraud are risks to be wary of. For this reason, it’s important to know what protections come with your card.
If your credit or debit card information is compromised, contact your bank immediately. Most banks have a 24-hour hotline you can call. The sooner you report it, the better. You will not be responsible for fraudulent charges made with your debit or ATM card after reporting it lost or stolen. If someone uses your debit card before you report it lost or stolen, liability varies based on the speed of reporting:
- Within 2 business days: up to $50
- More than 2 business days but up to 60 calendar days after your statement is sent: $500
- More than 60 calendar days after your statement is sent: all money taken from your account
Thanks to the Fair Credit Billing Act, the most you will have to pay if your credit card is stolen is just $50. Just like with a debit card, you must report the card theft immediately by contacting the card issuer.
After reporting the lost card, follow up with a written statement by mail or email. Carefully check your account to ensure there are no unauthorized charges and report them to the bank.
Keep an eye on your credit report to ensure your identity has not been stolen. If your credit card has been compromised, you may even consider freezing your credit to help protect against more fraud.
Frequently Asked Questions
How can I tell the difference between a debit card and a credit card?
Credit cards and debit cards look very similar and have many of the same information on both the front and back, so it can be easy to confuse them. However, “Debit” will be printed somewhere on the debit card, typically on the front, above the credit card number.
What is the best use of a debit card or credit card for certain transactions?
Some businesses, like car rental companies or hotels, require credit cards to make reservations. Some vendors, like gas stations, have increased security risks, making credit cards a safer option as they do not provide direct access to your bank account. Gas stations may also put holds on your card for amounts greater than the actual purchase price, and it can take days for the actual purchase cost to be adjusted. If you want to earn rewards, you should use a rewards credit card. In other instances, debit cards may help you avoid fees or overspending.
Do you
Can I use a debit card without a PIN?
Your bank will always require your PIN when withdrawing money from an ATM. However, many merchants may allow you to process your debit card like a credit card. When doing so, you will need to sign for the transaction instead of entering a PIN.
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Please read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.
Consumer.gov. “Using Debit Cards.”
Consumer.gov. “Using Credit.”
FDIC. “When and Why Your Credit Card Interest Rate Can Go Up.”
Discover. “Discover Will No Longer Require Signatures at Checkout.”
Mastercard. “
Source: https://www.thebalancemoney.com/difference-between-a-credit-card-and-a-debit-card-2385972
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