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Debit Card vs Credit Card: Main Differences Explained

Rebecca Safier • December 21, 2023

A young man smiles while looking at his phone and holding a blue credit card.

When it comes to a debit card vs credit card, which is better for your wallet? Learn more about the key differences between these popular payment methods.

What’s the difference between debit and credit cards?
Debit cards withdraw money directly from your bank account. Credit cards charge a line of credit that you pay back later and can come with interest charges.

When it comes to forms of payment, chances are you have either a credit card, debit card, or both in your wallet right now. While swiping your plastic debit or credit card may feel the same at checkout, these payment types have some key differences between them. Here’s a closer look at debit cards vs. credit cards to help you decide which will better meet your financial needs.

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What is the difference between debit and credit?

While credit and debit cards might look very similar on the outside, there are some critical differences between the two plastic payment methods. Debit cards draw money directly from your bank account, while credit cards allow you to borrow money from the card issuer that needs to be repaid.

Read on for a closer look at a debit card vs. a credit card, starting with how credit cards work.

How do credit cards work?

Think of a credit card as a loan. You are borrowing money from the card issuer that needs to be paid back according to the bank’s terms. Unless you pay your balance back in full within a month, you’ll be charged interest on the amount.

When you open a credit card, you’re approved for a line of credit, also known as a credit limit. Once you’ve reached the limit, you can no longer use your credit card for purchases.

There are a variety of credit card types on the market. The four main ones you are most likely to come across are:

  • Standard credit cards: Basic credit cards that give cardholders a line of credit for making purchases, balance transfers, and cash advances.
  • Secured credit cards: Credit cards that require an initial cash deposit that the issuer holds as collateral. Secured credit cards are an excellent way to build credit when you cannot get a standard credit card.
  • Rewards cards: Credit cards that offer cash back, travel points, or other rewards.
  • Charge cards: Credit cards with no preset spending limit but often do not allow unpaid balances to carry over from month to month.

Credit card pros and cons

Here are some of the benefits and potential drawbacks of using a credit card.

PROSCONS
Credit cards can help you build your credit historyYou can rack up credit card debt if you’re not careful
You can use credit cards for emergencies and purchases for which you don’t have enough cash in your accountYou can be charged interest when you don’t pay your balance in full and on time at the end of each billing cycle
Rewards credit cards let you earn rewards or cash back on purchasesYou may be charged fees

 

How do debit cards work?

Debit cards are connected to your checking account. When you use your debit card, you pay with money you already have, so debit cards are like plastic cash.

Because the money comes directly from your checking account, you don’t have to pay interest when using your debit card. Debit cards also work as ATM cards – you can use them to take cash directly from your bank account.

Just like credit cards, there are different types of debit cards. The three most common debit cards are:

  • Standard debit cards: Basic debit cards that allow card users to draw money directly from a checking account
  • Prepaid debit cards: These debit cards give users without access to a bank account a way to make electronic purchases up to the amount that was preloaded on the card
  • Electronic Benefits Transfer (EBT) cards: Debit cards issued by state and federal agencies to allow qualifying users to use their benefits to make purchases

Debit card pros and cons

Consider these benefits and possible downsides of using a debit card.

PROSCONS
You can only spend the money you have, preventing you from acquiring debtDisputed charges can be more difficult to resolve when a debit card is used instead of a credit card
You don’t have to pay any interest on your purchasesMost debit cards won’t help you build your credit history
You can use debit cards to withdraw cash from ATMs or to get cash back when you make a purchaseYou may be charged fees

 

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Debit card vs. credit card: Which fits you better?

There are advantages and disadvantages to both a credit card and a debit card. Determining which type of card is better for you depends on how you plan to use the card and how responsible you are as a cardholder.

As you compare a debit card vs. credit card, understand the various benefits, fees, and uses.

Fraud protection

When it comes to the credit card vs. debit card debate, both debit and credit cards offer zero-liability protection on fraudulent purchases. But the process of getting your money back differs depending on the type of card you use.

According to the Fair Credit Billing Act1, the maximum amount you may lose on an unauthorized credit card charge is $50. The investigation will likely be over by the time your statement balance is due.

However, under the Electronic Fund Transfer Act2, your potential loss on a debit card may be as much as $500 if you report the fraud more than two days after it took place. Moreover, the bank may not restore that cash to your account immediately.

If you need that money now, you’ll be at the mercy of the bank. In both cases, you’re not responsible for any amount of the unauthorized transaction if you report the card missing before any fraudulent purchases take place.

Spending control

The winner on this debit vs. credit match-up one is fairly obvious. Because debit cards are linked to a checking account instead of a line of credit, the only way to go into debt with this type of card is to overdraw your account. And you can avoid this by opting out of overdraft protection.

It’s possible to use credit cards without debt, but avoiding the temptation may be difficult. It’s easier to overspend with credit cards than with debit cards.

Rewards

When comparing credit vs. debit, it’s also worth considering rewards. Rewards are a common feature of credit cards. Finding a debit card with a good rewards program can be difficult.

On the other hand, credit cards offer big profits for financial institutions, so they’re more competitive in offering rewards to entice people to use their cards more often. As such, you’ll likely find better rewards and big sign-up bonuses with credit cards.

Fees

Reviewing the card’s rates and fees as part of your application submission is a smart idea when applying for a credit card. When doing so, you’ll notice that most credit cards charge a slew of fees.

Late fees, cash advance fees, balance transfer fees, and foreign transaction fees are all common among credit cards. Some even charge an annual fee. And that’s all on top of interest charges if you carry a balance.

Debit cards, on the other hand, typically don’t come with many fees. If your checking account charges a monthly fee, you may be able to get the fee waived by using your debit card regularly.

Credit building

Credit cards can help you build your credit and demonstrate that you are a trustworthy borrower. Credit card companies report your borrowing and payment history to the three major credit bureaus – Equifax, Experian, and TransUnion. This helps shape your credit score.

Each time you use your credit card, your credit history is reflected on your credit report. This includes positive things, such as on-time payments and low credit utilization, as well as negative things, such as late payments or delinquencies. Your credit report information is then used to calculate your credit scores.

In contrast, debit cards cannot help you build your credit because you are using your own money. So, using a debit card alone won’t help you establish or build a credit history.

FAQs about credit vs debit cards

What are the main differences between a debit card and credit card?

DEBIT CARDCREDIT CARD
Money comes straight from your bank accountMoney is borrowed from a line of credit, and you repay it later
Does not charge interestWill likely charge interest if you don’t pay your bill on time every month
Fees can include overdraft and out-of-network ATM fees, as well as fees for using your PIN during transactionsFees can include late, return payment, balance transfer, cash advance, and foreign transaction fees
Won’t impact or help build your creditCan affect and help build your credit

Can a debit card be used as a credit card?

When using your debit card at checkout, you sometimes have the option to choose a “credit” transaction after you swipe your debit card. This option does not make your debit card act like a credit card, nor does it help you build or establish a credit history. Selecting “credit” or “debit” just determines how the merchant processes the card.

Depending on which option you choose, the time it takes for your bank to process the transaction might vary. Selecting “debit” means the transaction will hit your checking account immediately, while “credit” might take a few days to clear.

This is why, if you don’t have enough money to cover the purchase, selecting “credit” sometimes permits the transaction to go through.

Do debit cards affect credit score?

No, debit cards do not affect your credit score because when you use your debit card, the money comes directly from your checking account. You are not borrowing money from the card issuer like you are with a credit card, so there is no credit history to report on.

Is a credit card safer than a debit card?

In most cases, credit cards are more secure than debit cards. Because debit cards are connected to your checking account, someone can have direct access to your money if your debit card were to be lost or stolen. If someone steals your credit card, you don’t lose actual money from your bank account.

Although banks freeze your account when you report either a debit card or credit card stolen, you will have more liability protection if your credit card is stolen than you would if your debit card is stolen.

Is it better to use a debit card or credit card?

Whether using a debit or credit card is better depends on your specific needs and goals. A debit card can be better if you want to avoid being tempted to spend past your means or rack up interest charges.

On the other hand, a credit card may be preferable if you can pay off your balance in full each month and earn rewards for your spending.

Why do people use debit cards instead of credit?

People may opt for debit cards over credit to avoid the possibility of going into high-interest credit card debt. Since debit cards withdraw money directly from your bank account, using them may make you less likely to spend more than you can afford.

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Chime® is a financial technology company, not a bank. Banking services are provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC. The Chime Visa® Debit Card and the Chime Credit Builder Visa® Credit Card are issued by The Bancorp Bank, N.A. or Stride Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit and credit cards are accepted. Please see the back of your Card for its issuing bank.

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* To apply for Credit Builder, you must have received a single qualifying direct deposit of $200 or more to your Chime Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit OR Original Credit Transaction (OCT). Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time direct deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.

† Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.

1 Information from the Federal Trade Commission Consumer Advice's Using Credit Cards and Disputing Charges, as of May 11, 2023: https://consumer.ftc.gov/articles/using-credit-cards-and-disputing-charges

2 Information from the Federal Reserve's Electronic Fund Transfer Act as of May 11, 2023: https://www.federalreserve.gov/boarddocs/caletters/2008/0807/08-07_attachment.pdf

~ Out-of-network ATM withdrawal and over the counter advance fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.

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