Debit vs. Credit
Is there Really a Difference?

Plastic, plastic, plastic…with a VISA or Master Card logo, aren’t they really all the same?    Absolutely not!  Credit cards and debit cards can be used in the same way with most merchants; however they are very different.  Credit cards use a line of credit issued by a bank and debit cards are connected to your checking accounts.

There are many advantages and disadvantages for both credit cards and debit cards.  You need to understand the differences for both cards to determine which type of card is best for you.  You may decide to use both a credit and debit card for different types of purchases.  Think about using credit cards for large ticket items and items for which you want more protection and use debit cards as you would use cash.  Credit cards can get you into trouble if you spend beyond your means, which also impacts your credit.  Debit cards can get you into problems if you spend more than is in your account.

Credit Cards
A credit card is like a promise to pay back your card lender at a later date.  You have a closing date for your account and are sent a bill that you pay within 22 days.  Since you do not pay immediately for your purchases, you have the use of the money until you are billed; this is called a “float.”  You then have two choices, pay the amount in full or carry a balance.  If you carry a balance, you must pay interest.  Credit cards are accepted at most businesses worldwide.

Credit Cards can be used without a PIN number.  Therefore, the card number can easily be stolen and used for online purchases without the actual card.  You have more protection with a credit card for fraud and errors.  When you dispute a charge, the card issuer removes the amount until the investigation is completed.

Credit cards are reported to the Credit Reporting Agencies and can help build your credit history.  This can raise your credit scores as long as you pay on time and keep your balances low.

Debit Cards
A debit card is like cash and is linked to your checking account.  The purchase amount can be taken out of your account immediately or up to a few days.  It is important to know how much you have in your account and keep track of your spending by recording each purchase.  Overdraft fees are charged for insufficient funds for both debits and checks.  A PIN number will give you protection and is required at ATMs.

Incorrect withdrawals are not refunded until after the bank investigates which can take a day to a couple weeks.  With a debit card, you have a short time frame to inform the bank of disputes for coverage.  After 7 days, most banks are not required to cover the cost of the dispute(s).

Debit cards are not reported to the Credit Reporting Agencies.

Click here for a Credit Card vs. Debit Card Advantages/Disadvantages list