Key takeaways
Debit cards pull money directly from your checking account. Credit cards let you borrow from a credit line you repay later, often with interest.
Credit cards often offer better rewards and can help build credit history. Debit cards tend to carry fewer fees and limit debt to overdrafts.
Using a debit card generally doesn't build or affect your credit score, since you aren't borrowing money.
Federal law caps your credit card fraud loss at $50. Your debit card loss can grow the longer you wait to report fraud.
When it comes to a debit card vs credit card, chances are you have one, the other, or both in your wallet right now. Swiping either card may feel the same at checkout, but the two work in different ways. Here's a closer look at how each card works, how they compare, and when to use each one.
What is the difference between a debit card and a credit card?
Debit cards draw money directly from your bank account. Credit cards let you borrow money from the card issuer, and you repay it later. That's the core difference between debit and credit card payments.
Credit cards may charge interest if you don't pay your balance in full by the due date. Debit cards don't charge interest because you spend money you already have.
Credit cards can help you build credit history, but debit cards generally can't. Federal law also caps credit card fraud losses at $50, while debit card losses depend on how fast you report fraud.
Here's a quick side-by-side look at debit vs credit.
Feature | Debit card | Credit card |
|---|---|---|
Where your money comes from | Money comes straight from your bank account | You borrow money from a line of credit and repay it later |
Interest | Doesn't charge interest | Can charge interest if you don't pay your bill in full by the due date |
Fees | Fees can include overdraft and out-of-network ATM fees | Fees can include late, balance transfer, and cash advance fees, plus an annual fee on some cards |
Credit building | Generally won't impact or help build your credit | Can affect and help build your credit |
Fraud liability | Your maximum loss can grow the longer you wait to report fraud | Your maximum loss for unauthorized charges tops out at $50 |
How do credit cards work?
Think of a credit card as a loan. You borrow money from the card issuer and pay it back according to the issuer's terms.
According to the Consumer Financial Protection Bureau, most credit cards offer a grace period on purchases. A grace period gives you time between the end of your billing cycle and your due date to pay. If you don't pay your full balance by the due date, the issuer can charge interest on the unpaid portion.
When you open a credit card, the issuer gives you a line of credit, or credit limit. Your credit limit sets the most you can borrow. Once you reach it, you generally can't use the card for more purchases until you pay down the balance.
You'll find a variety of credit card types on the market. The four main ones you're most likely to come across include:
Standard credit cards: Basic credit cards that give cardholders a line of credit for purchases, balance transfers, and cash advances.
Secured credit cards: Cards backed by a cash deposit the issuer can keep if you don't pay. A secured card can help you build credit.
Rewards cards: Credit cards that offer cash back, travel points, or other rewards.
Charge cards: Cards with no preset spending limit that often don't let unpaid balances carry over month to month.
Credit card pros and cons
Here are some of the benefits and potential drawbacks of using a credit card.
Pros | Cons |
|---|---|
Spending directly from your account can help you manage your budget, although overdrafts may occur. | You can rack up credit card debt if you're not careful |
You can use credit cards for emergencies and purchases when you don't have enough cash in your account | The issuer can charge interest when you don't pay your balance in full and on time each billing cycle |
Rewards credit cards let you earn rewards or cash back on purchases | Your card issuer may charge fees |
How do debit cards work?
Debit cards connect to your checking account. When you use your debit card, you pay with money you already have, so the card works like plastic cash.
Because the money comes directly from your checking account, you don't pay interest when you use your debit card. Debit cards also work as ATM cards. You can use them to take cash straight from your bank account.
Just like credit cards, debit cards come in different types. The three most common debit cards include:
Standard debit cards: Basic debit cards that let card users draw money directly from a checking account.
Prepaid debit cards: Cards that let you spend only the amount you load onto the card.
Electronic Benefits Transfer cards: Debit cards that state and federal agencies issue so qualifying users can spend their benefits.
Debit card pros and cons
Consider these benefits and possible downsides of using a debit card.
Pros | Cons |
|---|---|
You can only spend the money you have, which can help you avoid debt | Fraudulent charges pull money from your account right away, so you may wait for a refund |
You don't pay interest on your purchases | Most 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 purchase | Your bank may charge fees |
Debit card vs. credit card: Which fits you better?
Both a credit card and a debit card come with advantages and disadvantages. The better choice for you depends on how you plan to use the card and how you like to manage your money.
As you compare a debit card vs credit card, weigh the benefits, fees, and uses below.
Fraud protection
Federal law limits how much you can lose to fraud on both card types. In the credit card vs debit card debate, though, the limits and the process of getting your money back differ.
The Federal Trade Commission explains how federal law handles credit card fraud. If someone uses your lost or stolen credit card before you report it, the most you might owe comes to $50.
Debit card fraud works differently. Your maximum loss depends on how quickly you report a lost or stolen card. The Federal Trade Commission and the Consumer Financial Protection Bureau's Regulation E set out these tiers.
If you report… | Your maximum loss |
|---|---|
Before anyone makes an unauthorized charge | $0 |
Within 2 business days after you learn about the loss or theft | $50 |
More than 2 business days after you learn about it, but within 60 calendar days after your bank sends your statement | |
More than 60 calendar days after your bank sends your statement | You could be responsible for unauthorized transfers occurring after the 60-day period and before you notify your bank, if timely notice would have prevented them. |
Your bank may take time to investigate before returning disputed funds to your account. Your bank may provide temporary credit while it investigates, subject to applicable requirements. Any wait can feel stressful if you need the cash for bills. Check your account often and report anything unusual right away.
For both card types, you won't owe anything for unauthorized charges if you report the card missing before any fraudulent purchases happen.
Spending control
Debit cards draw money from your checking account rather than a credit line, which can help you manage spending. However, some transactions may overdraw your account.
You can avoid overdraft fees on debit purchases by opting out of overdraft coverage. If you don't opt in, your bank may decline the purchase instead of charging a fee, according to the Consumer Financial Protection Bureau.
You can use credit cards without carrying a balance from month to month by paying your balance in full by the due date each month.
Rewards
Rewards can also tip the scales when you compare credit vs debit. Many credit cards offer cash back, points, or sign-up bonuses.
Some debit cards also offer rewards. Compare eligibility requirements, fees, and rewards terms.
Fees
Review a card's rates and fees before you apply for a credit card. Many credit cards charge several types of fees.
Common credit card fees include late fees, cash advance fees, and balance transfer fees. Certain cards add an annual fee or charge extra for purchases made outside the U.S.
Debit cards, on the other hand, may carry fewer fees. Some checking accounts waive monthly fees if you meet certain requirements, so check your account terms.
Credit building
Credit cards can help you build your credit and show lenders that you handle borrowed money well. Credit bureaus are companies that collect your borrowing and payment history into credit reports.
The Federal Trade Commission notes that most bank credit card accounts typically appear on credit reports. Those reports come from the three nationwide credit bureaus – Equifax®, Experian®, and TransUnion®.
Your credit report shows positive activity, such as on-time payments and low credit utilization – the share of your available credit you use. It also shows negative activity, such as late payments or delinquencies. Making on-time payments can help build positive credit history and may positively impact your credit score, while late payment may negatively impact your score.
Debit cards work differently because you spend your own money. Debit card activity generally doesn't show up as borrowing history with the credit bureaus. So a debit card alone typically won't help you establish credit.
When to use a debit card vs a credit card
In the debit card vs credit card decision, you don't have to pick just one card for everything. Matching the card to the purchase can help you get the most out of each.
A debit card often works well in these situations:
Everyday budgeting: A debit card draws from your account balance, which can help you track spending and manage your budget. However, overdrafts may occur.
ATM cash: Your debit card lets you withdraw cash at an ATM when you need it.
Avoiding interest: Debit purchases don't create a balance that can grow with interest.
A credit card may make more sense for these:
Online and large purchases: A credit card can keep a fraud dispute away from the cash in your checking account.
Travel and rentals: Hotels and car rental companies may place a hold on your card. A credit card hold ties up available credit, not cash in your checking account.
Earning rewards: A rewards card can earn cash back or points, and paying in full each month helps you avoid interest.
Building credit history: On-time credit card payments can help you build a positive credit history over time.
How the Chime Visa® Debit Card and Chime Visa® Credit Card compare
Chime offers debit and secured credit card options for different spending goals:
Chime Visa® Debit Card: Purchases draw money from your Chime Checking Account. You can also use it to withdraw cash at ATMs. Debit card activity generally doesn’t build credit history.
Chime® Card: This secured credit card lets you make purchases backed by money in your secured deposit account. (see disclosure 1) Chime reports your payment activity (see disclosure 2) to Equifax®, Experian®, and TransUnion®, so payments can help build credit history (see disclosure 3) . Late payments may negatively affect your credit score.
If you use your Chime Card®, you can turn on Safer Credit Building (see disclosure 3) automatically pay your monthly balance using money set aside in your secured deposit account.
Choosing the right card for your wallet
The debit card vs credit card choice depends on your needs. A debit card draws from your account balance and doesn’t charge interest on purchases, although overdrafts may occur. A credit card can offer rewards and a way to build credit history when you pay on time.
Many people use both cards for different purchases. If you want to build credit history through everyday purchases, the Chime Visa® Credit Card
(see disclosure 1) with Safer Credit Building (see disclosure 3) enabled is one option to consider.