Graphic image of man swiping a credit card

Credit Cards Vs Debit Cards

At first glance, a credit card and a debit card can appear to be quite similar. But there are substantial differences in the way that each of them will operate. Let’s take a closer look at what distinguishes a credit card from a debit card.

Available Funds

The biggest difference is what funds you can draw from. When you use a debit card, you will only be able to use money that you have deposited in the bank. If you don’t have sufficient funds in your account, the transaction will be denied. This makes it impossible for you to spend more than you can afford.

On the other hand, if you have a credit card you can borrow money to purchase an item. The credit limit is the maximum amount of money you will be able to borrow. The credit limit will depend on multiple factors, like the type of card you are using and your ability to pay back previous debts.

Costs

Generally, a debit card will have no or low fees associated with it. On the other hand, you might be charged fees for using a credit card.

The biggest cost associated with using a credit card is interest. This is accrued based on the amount you have borrowed from the bank. Compared to most other types of loans, credit card rates tend to be substantially higher.

Rewards

It’s rare for a debit card to be associated with a reward program. However, credit cards are a lucrative business for banks. Because of this, they take steps to make sure that their customers are using their cards, rather than going to a competitor.

As a result, it’s common to see credit cards associated with reward programs. These can include giving you discounts on certain products or helping you get budget travel. It’s common for there to be a link between the amount you are spending and the rewards you will be able to achieve. However, for you to get a financial benefit from these programs, you will need to pay off your debt balance each month.

Impact On Your Credit Score

A debit card will have no impact on your credit score, as you won’t be borrowing any money from the bank. On the other hand, a credit card will impact your credit score. Those who borrow money, but have a history of paying off the debt, will have a strong score. But if you rarely pay off your debts, or become overdrawn on your account, it can lower your score.

Fraud Protection

Finally, it’s common for credit cards to come with more advanced fraud protection programs. Depending on the type of card you are using, you might even be able to get travel insurance. You won’t get these protections on a debit card.

Conclusion

Though they look similar, credit and debit cards will operate in two very different ways. Which one you choose will depend on what you are looking for. Debit cards provide more financial security, as there is no chance that you will go into debt by buying something you can’t afford. On the other hand, credit cards will come with reward programs, more sophisticated fraud protections, and the ability to borrow money with ease. Please note, that this is only some basic information on credit and debit cards. Call us at 310.826.7000 for more information.

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