Is credit card and debit card the same? What are the key differences that are easy to spot?
Debit cards and credit cards look nearly identical. They have 16-digit credit card numbers and expiration dates, and this is one of the reasons you may ask, Is credit card and debit cards the same?
Debit cards allow you to spend money by drawing on funds you have deposited at the bank. Credit cards let you borrow money from the card issuer to buy items or withdraw cash.
Most people have at least one debit and one credit card. The convenience and protection they offer are hard to beat, but they have significant differences that could substantially affect your pocketbook.
Is credit card and debit card the same? Let’s get started by knowing what a credit card is.
What is a credit card?
A credit card, which a bank typically issues, allows the cardholder to borrow money from that financial institution. Cardholders agree to pay the money back with interest, according to the institution’s terms. Credit cards are issued in the following variety of categories.
- Standard cards: offer credit lines to their users to make purchases, balance transfers, cash advances, or both. Often, there is no annual fee.
- Premium cards: although they offer perks like concierge services, airport lounge access, and special event access, they often have higher annual fees.
- Reward cards cash back travel points customers may receive discounts or other benefits based on their spending.
- Transfer cards for balance:: you will enjoy low-interest rates at the beginning and no fees for transferring balances from other credit cards.
- Secured credit cards: initial cash deposit is required. The issuer will hold the collateral.
- Charge cards there: is no spending limit, but they don’t often allow unpaid balances that aren’t paid to be carried over from month to month.
Credit card users can reap cash, discounts, travel points, and many other perks unavailable to debit cardholders by using rewards cards.
You can either earn rewards on a flat-rate or a tiered basis. You might have a card with unlimited miles per dollar and another that gives you three miles per $1 for travel, two miles for dining, and one mile for all other purchases. To book future travel arrangements, you could use the miles that you have earned.
Pay attention to the expiry dates of credit cards and the redemption options available.
Credit history building
Credit card use is reflected on your credit report. That includes positive history, such as on-time payments and low credit utilization ratios, and negative items, such as late payments or delinquencies.
Your credit report information is then used to calculate your credit scores. Responsible spenders can raise their scores with a history of expenditures and timely payments by keeping their card balances low relative to their card limits.1
Many credit card companies offer free credit score monitoring and tracking as a card perk, so you can keep an eye on your progress when building credit.
Purchase protection and warranty
Some credit cards may offer additional warranties and insurance for purchased items. It is worth checking with your credit card company to confirm that coverage will be provided if an item purchased with a credit card turns out to be defective after the manufacturer’s warranty has expired.
You may also have purchase protection that covers you in the event of theft or loss and refunds for price differences if an item is sold at a lower price.
In most cases, credit cards offer more excellent protection than debit cards. The maximum customer liability for any purchases made after the card was stolen or lost is $50, provided that the customer reports it in a timely fashion.
The Electronic Fund Transfer Act gives debit card customers the same protection from loss or theft–but only if the customer reports it within 48 hours of discovery. After 48 hours, the card user’s liability rises to $500; after 60 days, there is no limit.
Additional credit card benefits
Credit card users can dispute unauthorized purchases and return goods damaged or lost in shipping. What’s more, debit card theft victims do not get their refunds until an investigation has been completed.
However, the credit card holder is not responsible for any disputed charges. The amount is typically deducted immediately and then restored only if the merchant resolves the dispute.
Though some credit and debit card providers offer zero liability protection to their customers, the law is much more forgiving for credit cardholders.
If you need to rent a car, many credit cards provide some waiver for collisions.
Even if you want to use a debit card, many car rental agencies require customers to provide credit card information as a backup. A customer might have to allow the rental agency to hold a few hundred dollars on a debit card from a bank account as a surety deposit.
The cons of using credit cards
Credit cards have several drawbacks, including debt, credit score impacts, cost, and risk.
- Debt can be caused by spending: You spend the bank’s money when you purchase with your credit card. The money must be repaid-with interest. At the very least, you’re required to make the minimum payment due each month. You could have difficulty keeping up with your monthly payments if you have high balances on multiple credit cards.
- Credit score impacts: Paying your bill on time and keeping balances on credit cards low can help your FICO scores. If you are prone to using credit cards in destructive ways, such as late payments, closing down old accounts, or applying for credit, it could damage your credit history. You can set up credit card alerts to notify you of card balances and payment due dates. This will help you to pay on time and keep your credit limit from maxing out.
- Fees and interest: A credit card is a short-term loan. You’ll need to repay what you spent with interest. The interest rate and the fees the credit company charges are used to calculate your annual percentage rate (APR). You will pay more to carry a balance month to month if the APR on your card is higher.
It is essential to know whether your card has an annual fee or a foreign transaction charge, a balance transfer fee (or both), a late payment fee, a late fee, a late fee, or a returned fee. The annual fee for credit cards will increase if they offer more benefits and have a better rewards program.
Is credit card and debit card the same? Let’s examine what a debit card is.
What is a debit card?
A debit card allows you to make payments directly from your checking account. It is not like a loan from a bank. Debit cards offer the convenience of credit cards and many consumer protections when issued by major payment processors such as Visa or Mastercard.
Two types don’t require customers to have a checking account or savings account.
- Standard debit cards you can draw on your bank account.
- Card for electronic benefits transfer (EBT). Federal and state agencies issue certificates to enable eligible users to use their benefits for purchases.
- With prepaid debit cards people without a bank account can make electronic purchases as long as the amount is preloaded on the card.
Frugal customers may choose to use debit cards because they usually have a lower or no fee unless they spend more than their account.
Overdraft fees are also not an option. Prepaid debit cards do not have a no-fee benefit. They often charge usage and activation fees. Credit cards, on the other hand, charge annual fees, over-limit and late payment fees, as well as monthly interest on outstanding balances.
The pros of using debit cards
Like credit cards, debit cards can also have upsides and disadvantages.
Avoid debt: The debit card takes the user’s money, so there is no risk of getting into debt. Retailers know people usually spend more when using plastic than if they were paying cash.
By using debit cards, impulsive spenders can avoid the temptation of credit and stick to their budget. This can help you avoid high-interest debt.
Fraud protection: Moreover, debit cards, especially those issued by payment processors such as Visa and Mastercard, are starting to offer greater protections than credit card users.
It is important to report fraud and theft as soon you realize it has happened. The time it is reported determines your liability for fraudulent purchases. You could be held responsible for any or all losses if you wait too long to notify the bank that your card was used for fraudulent purchases.
There is no annual fee: While many credit cards have an annual fee, debit cards do not. You don’t have to pay a fee to withdraw cash from your bank’s ATMs using your debit card.
Credit cards, on the other hand, can charge a cash advance fee plus a steep interest rate for that convenience. However, you may have to pay additional fees to keep your checking account open.
Credit card cash advances don’t come with a grace period. Instead, interest starts accruing immediately.
There are cons of using debit cards
Like credit cards, debit cards have the most significant downsides in terms of cost and credit score.
- There are no rewards: Unless you have rewards checking account, you won’t earn any points, miles, or cash back on purchases made with your debit card. You could miss out on valuable rewards if you only use a debit card to make purchases.
- Will not build credit: Good credit proves to lenders that your ability to repay loans can be repaid. You can’t spend with a debit or credit card linked to your bank account. This will make it difficult to build credit.
- Fees: Although debit cards do not have an annual fee, there may be other fees for opening a checking account. Those can include monthly maintenance fees, overdraft fees if you overspend from your account, returned item fees, and foreign ATM fees if you use your debit card at another bank or financial institution’s machine.
I’m well convinced that, by now, you will have a clear understanding of the difference between credit cards and debit cards, and you will no longer ask the question, “is credit card and debit card the same?”
If there are more questions, you would like to ask, kindly drop them in the comment box.