What to know about choosing ‘credit’ when paying with a debit card

What to know about choosing 'credit' when paying with a debit card What to know about choosing 'credit' when paying with a debit card Image:

In a Nutshell

You may get to choose 'debit' or 'credit' when making a purchase with your debit card. Signing could offer you benefits, but using your PIN may save the merchant money.

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Choosing ‘credit’ when making a purchase on a debit card can affect your benefits, the merchant’s fees and how the transaction gets processed.

Using a debit card can be a convenient alternative to cash, checks or credit cards. However, many debit cards also have a credit network logo on them — Visa® or Mastercard®, for example — that lets you choose to pay with credit at merchants that accept those credit cards.

As it turns out, there aren’t many differences for consumers who decide to choose either the “debit” or “credit” option when paying with a debit card. But here are a few key points to consider.

  1. Choosing debit can make the transaction complete faster.
  2. Choosing debit could save the merchant money.
  3. Choosing credit could offer you more cardholder benefits.
  4. Choosing credit won’t help you build credit.

There are also a few functional differences between the two options as well.

With the debit option, also known as online debit or PIN-based debit, you …

  • May have to enter your PIN to complete the transaction.
  • May be able to withdraw cash from your account.
  • Will have the transaction immediately reflected on your bank account.

With the credit option, also known as offline debit or signature-based debit, you …

  • Can swipe or insert that card and then sign to complete the purchase.
  • May have to wait several days for the transaction to go from pending to complete in your bank account.

With small purchases, such as those under $25, you may not need to enter your PIN or sign when making a purchase, regardless of choosing debit or credit.

Let’s dig a little deeper into those four key points mentioned above to get a better understanding of the differences and dispel a common misunderstanding about choosing credit.


Choosing debit can make the transaction complete faster.

When you choose the debit option, your transaction information gets sent through an electronic funds transfer (EFT) network. The network relies on a single transmission to authorize, clear and settle the purchase amount.

For you, this means the transaction is reflected on your checking account right away. The direct connection to your bank account is also what allows you to withdraw funds with your purchase.

However, if you use your debit card with a signature (the credit option), the transaction information gets routed through the same networks that the credit cards use. Similar to what you find with credit cards, it can take several days for the transaction to be authorized, cleared and settled, and the transaction may be pending in your checking account during that time.

Choosing debit could save the merchant money.

Merchants pay a fee every time a customer uses a debit or credit card to make a purchase. The fee can depend on a variety of factors, such as the type of store, the merchant’s payment processor and the type of credit card you use (e.g., a rewards credit card versus a non-rewards card).

It used to be that with debit cards the fees would vary depending on if you chose to sign or use your PIN, but that’s no longer true with large banks and credit unions. A provision, known as the Durbin amendment, in the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law in 2010, requires the Federal Reserve to limit the interchange fees that card networks can charge merchants each time a customer uses a debit card.

However, debit card issuers that have less than $10 billion in assets are exempt from these interchange fee limits and standards. When you use a debit card from an exempt issuer, the fees that merchants pay could vary depending on whether you choose to use your PIN or signature, and merchants will generally pay more for PIN-based debit transactions. There’s no difference for consumers, but your choice could save the merchant a little money.

Choosing credit could offer you more cardholder benefits.

One advantage of choosing credit and signing when making debit card purchases is that the card networks may offer you protections, such as zero liability for fraudulent purchases. If you use your debit card at a restaurant and the waiter adds an extra zero to the tip amount or swipes your card twice, the protection could help you when you are trying to get reimbursed for the unauthorized charge.

Although they’re not as common, some debit cards have rewards programs. Depending on the issuer, you may only receive rewards when you make signature-based purchases.

Choosing credit won’t help you build credit.

It’s not a big stretch to think that when you choose the credit option, your purchases could help you build credit. But that’s not the case. Although there are differences between PIN and signature transactions, even when you choose credit on a debit card, the card still works like a debit card.

With a debit card, you don’t have a revolving balance. You’re spending money from your bank account, not making purchases on credit (i.e., borrowing money). Your debit card account or account activity does not get reported to the credit bureaus, so they don’t show up on your credit reports or affect your credit scores.

Consider opening a credit card if you want to build credit.

Using a credit card could be a better option if you’re trying to build credit. Credit cards can also offer rewards programs as well as a variety of benefits. As long as you pay your bill in full and on time each month, you won’t have to pay any interest on your purchases.

You can also find credit cards that don’t have an annual fee, including rewards cards. If you’re planning a trip overseas, you might be interested in cards that don’t have a foreign transaction fee, which can save you money if you travel outside the U.S.


Bottom line

The next time you make a purchase with a debit card and are asked to choose between credit or debit, remember that the credit option isn’t a credit purchase. It just means the transaction data gets processed through the credit network associated with your card. The transaction won’t help you build credit, and money still gets taken directly out of your bank account, even if the transaction is pending for a few days.

Choosing credit could still benefit you for other reasons, but if you use a small regional bank or credit union, you might be able to save the merchant some money by entering your PIN.