Credit Cards vs. Debit Cards: What’s the Difference?

Written by Kim PinnelliUpdated: 29th Sep 2021
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If you’re wondering if you should open a new credit card or debit card, it’s important to know the difference. They may both say Visa or Mastercard, but the similarities end there.

Understanding how they affect your finances, credit, and ability to spend is important before choosing whether a credit card or debit card is the right choice for you.

Credit Cards vs. Debit Cards: Overview & Basics to Know

You have two options when you aren’t paying cash – a credit card or debit card. They look the same and even act the same on the surface, but underneath they have many differences.

It’s important to know that credit cards affect your credit and debit cards don’t. The differences don’t end there, but that’s a major factor to consider.

You must apply for both, but a credit card is often harder to get, and when you apply, it shows up on your credit report as an inquiry.

Debit cards come with your bank account. You’ll need a bank to approve your ability to have a bank account, but then most accounts (even some savings accounts) come with a debit card.

What Is a Credit Card?

The best banksand credit card companies issue credit cards. They come with a credit limit, and when you use the credit card, you borrow the funds.

When you use your credit card, you agree to pay the amount back in full but can make minimum payments based on the amount required by the bank or financial institution.

There are a few types of credit cards, each of which has different benefits and uses:

  • Standard credit card – This is the card most people get at least to start. With this credit card, you can borrow funds, make minimum payments, pay the full balance, and reuse/use any of the remaining credit line.
  • Secured credit card – If you don’t have a credit history or you have bad credit, a secured credit card is often a good option. It’s like a standard credit card, except your credit line is equal to the deposit you make. If you put down $300, you have a $300 credit line. If you make your payments on time, you get your deposit back after closing the account and/or upgrading it. If you default, the bank keeps your deposit.
  • Rewards credit card – If you like to earn cash back on your purchases or fly often, you may benefit from a rewards credit card. There are hundreds of options, but most pay you in either points, cashback (statement credits), or airline miles. You usually need great or at least decent credit to qualify. There are also travel credit cards that earn various rewards, such as miles or points. 
  • Charge cards – A charge card is like a credit card, except you must pay the balance in full each month. You can’t carry a balance. American Express cards are a common example of charge cards.

What Is a Debit Card?

A debit card looks like a credit card, but it’s different. You can use it anywhere Visa or Mastercard is accepted, but you aren’t borrowing the funds. The money you ‘charge’ comes right out of your checking account.

Debit cards give you the benefit of a credit card without the interest costs or the risk of overspending, but you lose some of the purchase protections credit cards offer.

>> More: Check out our complete guide on debit cards

Is It Easier to Get a Debit Card or a Credit Card?

Debit cards are much easier to get than credit cards. You don’t need a specific credit score or income to get a debit card.

Banks evaluate your banking history and relationship with the bank, but that’s about it. As long as you don’t have any issues in the ChexSystems, you shouldn’t have trouble getting a debit card.

Credit cards, on the other hand, require specific credit scores and other qualifying factors. If you have a low credit score or a recent history of defaulted credit, you may not get approved for a credit card, or if you do, it may be for a much smaller credit limit or higher APR.

Debit Cards vs. Credit Cards: Benefits & Downsides

Benefits of Using Credit Cards

Credit cards often have a bad reputation, but they have many benefits, including:

  • Purchase protection – Many credit cards offer additional warranties on top of the warranties you get from the manufacturer. Check with your credit card company to see what type of guarantees they offer that typically work after the manufacturer’s warranty expires.
  • Build a credit history – Most credit card companies report your credit use to the credit bureaus. They report whether you make your payments on time, how much of your credit line you use, and your balance. If you use your credit card right (only charge what you can afford to pay off ), don’t over-extend your credit balance, and don’t pay your bill late, it can help you build good credit.
  • Fraud protection – Most credit cards have a $0 fraud protection. This means if someone steals your credit card and uses it, you aren’t responsible for the charges.
  • Miscellaneous benefits – Each credit card company offers different benefits, but a few common examples include rental car insurance and travel insurance are a couple of benefits. Some rewards cards provide access to airport lounges or free baggage checks too.

Benefits of Using Debit Cards

Debit cards are sometimes a safer option and provide these benefits:

  • No debt – Debit card purchases come right out of your checking account. You don’t build up a balance and accrue interest.
  • No charges – Most debit cards don’t have any charges, but no debit card accrues interest. You aren’t borrowing the money; you are using your own money.
  • Fraud protection – Some banks offer fraud protection if your card is stolen. This varies by bank, and any bank that offers it requires you to report the loss immediately for the fraud protection to occur.

Downsides of Using Credit Cards

There are always downsides to consider when looking at any financial decision, including credit cards. Here are the most common downsides:

  • Hurts your credit score – If you miss a payment, overextend your credit, or take out too many credit cards, it can damage your credit score.
  • Easy to overspend – It’s easy to mindlessly spend when you swipe a credit card, and you know the money won’t come out of your checking account. This can lead to excessive debt.
  • Interest charges – If you don’t pay your bill within the grace period (usually 25 days), your balance will accrue interest. This makes your purchases more expensive, and if you let it go too long, it’s hard to get out of credit card debt.

Downsides of Using Debit Cards

Like credit cards, debit cards have downsides, too, including:

  • Doesn’t help your credit – Even if you have a great payment history and use your debit card responsibly, they don’t report to the credit bureaus, so it doesn’t help your credit score.
  • No rewards – Most banks don’t offer rewards for using your debit card, although some may offer a small cashback award for using it at certain stores.
  • Fraud risk – If someone steals your debit card, you may be liable for the charges.

Credit Cards vs. Debit Cards FAQS

Which Is Better Credit Card or Debit Card?

This isn’t the point of one is better than the other – it’s a personal decision. If you can use a credit card responsibly, it offers more benefits, but then there are the interest charges.

If you can’t use it responsibly or you worry about overspending, a debit card may be better.

Is a Credit Card safer than a Debit Card?

Credit cards offer more fraud protection than a debit card. You aren’t putting your checking account funds at risk when you use a credit card as you do with a debit card.

Do Debit Cards or Credit Cards Help You Build Credit?

Credit cards help you build credit. Most credit card companies report your account to at least one of the three credit bureaus.

If you pay the bill on time, use your credit responsibly, and don’t open too many credit cards, it can be a great way to build credit. Debit cards don’t help or hurt your credit score.

Bottom Line: Debit Cards vs. Credit Cards

Whether you use debit or credit cards, use them responsibly. Both have a major impact on your finances and are an important part of your financial plan.

Credit cards are great for large purchases for the protection, time to pay it off, and the boost it gives your credit score.

Debit cards are good for keeping your spending in line without risking overspending and putting yourself further into debt.

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Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.