Debit Card vs. Credit Card: What is the Difference?

September 27, 2019 | Mission Fed

Most people today own both a debit card and a credit card, but many are confused about what the difference is between the two. It’s a common source of confusion, since the cards look identical and have similar uses.

So, what exactly is the difference between those thin, plastic rectangles in your wallet? Read on to find out from the experts at our San Diego credit union!

Money Source

The main difference between a debit card vs. credit card is where the cards pull money out from (which account is funding your shopping spree). Our debit card takes money from your checking account whereas, a credit card instead, charges you a line of credit.

CliffsNotes Edition:

  • Debit = money from your checking account
  • Credit = borrowed money from credit card companies

Types of Debit and Credit Cards

To help you better understand the difference between a debit card and credit card, let’s identify the distinctions within each type of card. Both debit cards and credit cards can be broken up into smaller sub-categories.

Types of Credit Cards:

  • Standard Card – A basic card that extends a line of credit to its users.
  • Secured Credit Card – One that requires an initial cash deposit, which is then held by the issuer as collateral.
  • Charge Card – Although this card has no spending limit, oftentimes the issuer will not allow unpaid balances to carry over from month to month.
  • Rewards Card - These offer cashback, travel points, and other benefits.

Types of Debit Cards:

  • Standard Debit Card – This card will draw funds from your bank account.
  • Electronic Benefits Transfer (EBT) Card – These are issued by state or federal agencies to allow qualifying individuals to use their benefits when making purchases.
  • Prepaid Debit Card – This card works rather like a gift card. As the name implies, it is prepaid up to a specified amount. It allows people to make purchases up to that amount without the need of accessing bank accounts.

Making Purchases

There are differences when you physically make purchases between a credit and debit card.

Pin vs. No Pin

If you decide to use your debit card for a purchase or at an ATM, you will be required to enter a four digit PIN number. With a credit card you might need to enter your zip code, a signature, a swipe and you are good-to-go.

Almost all merchants require a signature when you swipe your credit card. Debit cards, on the other hand, do not require them.

Exception to the rule: Some merchants will let you use your debit card as a ‘credit card’ and use a signature rather than entering a PIN.

Checkbooks

Writing a check seems rare these days. However, there is definitely a time and a place for writing those old-fashioned paper slips. Debit cards connect to your checking account, so funds from checks and debit cards are coming out from the same place.

Rewards

When discussing debit card vs credit card difference, rewards and rewards programs are some of the things that come to mind. While debit cards are more straightforward and do not offer any rewards; credit cards on the other-hand provide an abundance. For some people, a rewards program may be the biggest benefit to having a credit card.

Credit Card Reward Types:

  • Points: With rewards points, the more money you spend, the more points you receive. These points can then be cashed in for gift cards, special offers , hotel stays, and more.
  • Frequent Flyer: For those who travel a lot, frequent flyer rewards are the perfect option for you because the more you fly, you earn extra points.
  • Spending Rewards: Certain rewards programs are catered toward certain products. Gas, groceries, retail — these are all possible categories where you earn higher rewards.
  • Travel Rewards: Travel rewards are similar to spending rewards — when the spending is specifically on travel. Think - car rentals, hotels, airline tickets, or train tickets. Buying any of these on a travel rewards card will accumulate more points and more savings for you!

Sorry, We Only Accept Credit Cards

While debit cards are widely accepted, there are some situations that require credit cards. This may happen while you’re traveling — companies, hotels etc., may bill you for potential damages. These situations can come up in:

  • Car rentals
  • Hotel bookings
  • Making purchases while traveling overseas

Fraud Protection

Most people are anxious about having their identity stolen when they use credit or debit cards and although this can happen when using both, credit cards often offer excellent fraud protection.

While you can’t always prevent fraud from happening, you can stop it as soon as possible:

  • Check your statements regularly
  • Immediately report unknown fraudulent charges
  • Familiarize yourself with your card’s fraud protection

Debit cards and credit cards differ slightly when it comes to fraud transactions and protection:

  • Credit Cards: Offer a lot more security when your card has an authorized charge. The maximum liability for purchases after your card is stolen will be higher for debit cards.
  • Debit Cards: Generally speaking, customers get the same protection if theft is reported within 48 hours. After that, your liability goes up to $500. Then, after 60 days, there is no limit.

Interest Rates: Credit vs. Debit

Interest is something worth paying attention to, especially if you don’t want to throw your money away! If you make a purchase on a credit card, you are charged interest. However, this interest will disappear as long as you pay your balance off by the end of the month. Since debit cards pull directly from your funds, you do not pay interest.

Fees

Speaking of throwing money down the drain, what does it cost to have these cards? For debit cards, fees are generally charged when you spend more than you have in your account. These are called overdraft fees.

Credit card fees, on the other hand, are a lot more common. Types of credit card fees include:

  • Annual fees
  • Over-limit fees
  • Late-payment fees
  • Interest on outstanding balance

Luckily, if you use your credit card responsibly and pay your bill on time, you can avoid most of these.

Credit Score

Building a good credit score, cannot be stressed enough. It is incredibly important. Whether you are trying to buy a home or borrow money to start a business, you will need good credit. How do debit and credit cards affect this? Well, debit cards do not, but credit cards are vital in helping you build good credit.

By paying off your credit card and monthly bills on time, your credit score improves. This increases the trust that lenders have in you as an individual.

Similar, Yet Different

Credit cards and debit cards have many similarities. They eliminate the need to carry cash, and not to mention, look almost identical — each with 16-digit card numbers and expiration dates.

However, remember, the two cards are actually quite different. Both credit cards and debit cards have their own unique benefits. So next time you open your wallet, think about which card would be best for your purchase!

The content provided is intended for informational purposes. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article does not constitute endorsement, control or warranty by Mission Federal Credit Union.

Sources:

The Balance. What Is the Difference Between Credit Card and a Debit Card? https://www.thebalance.com/difference-between-a-credit-card-and-a-debit-card-2385972

Investopedia. Credit Cards vs. Debit Cards: What’s the difference? https://www.investopedia.com/articles/personal-finance/050214/credit-vs-debit-cards-which-better.asp

Mission Fed

Mission Fed

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