The difference between a debit card and a credit card

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In a Nutshell

Both debit and credit cards can be used to make purchases, but the way payments are processed varies based on the type of card you use. Debit cards are linked to your bank account, so every time you make a purchase, the amount is automatically deducted from your account. Credit cards give you access to a line of credit that lets you borrow money for purchases and repay it later.
Jennifer Brozic is a personal finance writer and has written for Citi. Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.
Credit cardDebit card
Borrow money to make purchases and repay it laterMoney deducted from your bank account to pay for purchases
Can help build your credit historyWon’t help build your credit history
Likely charged interest if you don’t pay your bill in full every month by the due dateNo interest charges
Can be used to make purchases even if you don’t have cash on handTypically need money in your bank account to make purchases
Fees include late, return payment, balance transfer, cash advance and/or foreign transaction feesFees include overdraft and out-of-network ATM fees, as well as fees for using your PIN during transactions
Liability for fraudulent purchases is limitedYou could be liable for fraudulent purchases

They may look alike, but debit and credit cards work differently.

When you use a debit card to make a purchase, money is automatically debited from your bank account to pay for it.

When you use a credit card, you borrow money to buy things, then pay for them later. At the end of each billing cycle, you receive a bill for the purchases you made plus any interest or fees — and you’re responsible for paying it.

Each type of card is good for different situations and different people.

What is a debit card?

A debit card is a payment method that can be used as an alternative to cash. There are two major types of cards that you might see referred to as debit cards — bank debit cards, which you can get when you open a debit account, and prepaid cards. Though prepaid cards are not strictly debit cards, so they may not work or be treated the same way.

Bank debit cards

Most banks and credit unions issue a debit card when you open a checking account. The card is linked to your account and can be used to make purchases. When you use your card, the cost of the item you’re buying is automatically deducted from your account to pay for the purchase.

Prepaid cards

While they’re sometimes referred to as debit cards, prepaid cards aren’t linked to a bank account and work differently than true debit cards. Instead, you load money onto the card and use it for purchases. When the balance gets low, you can often add more money onto the card if you want to continue using it. Prepaid debit cards are available in stores and online. One thing to note — because they’re not actually debit cards, prepaid cards don’t carry all of the same protections.

Pros of debit cards

Like the idea of not having to stop by the ATM or bank to get cash every time you want to buy something? Besides the convenience, debit cards offer a variety of benefits.

  • A debit card can help you keep your spending in check, since you usually need the money available in your bank account if you want to use the card to pay for things.
  • You can set up alerts to monitor debit card activity.
  • You won’t pay interest on your purchases.
  • You can use your debit card to withdraw cash from ATMs or to get cash back at a point of sale when you make a purchase.

Cons of debit cards

While there’s a lot to like about using a debit card, there are some things you should watch out for.

  • You may be charged fees. Common costs with debit cards from banks or credit unions can include out-of-network ATM fees and overdraft fees, as well as fees for using a PIN during transactions. If you have a prepaid card, you might have to pay to activate it, to add more money to it, to check your balance, to get money from an ATM and more.
  • Using a debit card won’t help you build your credit history, which is one of the things that help you improve your credit scores.
  • You may be liable for fraudulent charges on your debit card. The Electronic Fund Transfer Act limits your responsibility for unauthorized charges if your debit card is lost or stolen and you report it within two business days of learning about the loss or theft. But if you wait too long, you could be on the hook for some or all of the charges.
  • Remember that prepaid cards are not debit cards, even though they’re sometimes called debit cards. Because of this, they won’t have the same protections as a true debit card — though a recent rule from the CFPB aims to increase consumer protections for prepaid cards, including in the event your card is lost or stolen. For now, if you want access to some protections, make sure whatever prepaid card you get has limited liability by checking the card’s terms and conditions and making sure that you’ve completed the consumer identification and verification process.

What is a credit card?

A credit card offers a line of credit that lets you borrow money to make purchases. Many credit cards also let you get cash advances or do balance transfers. When you use your card, you agree to repay the credit card company the amount you borrow, plus any interest charges you incur.

Pros of credit cards

Credit cards offer many advantages that cash and debit cards don’t.

  • The Fair Credit Billing Act limits your liability to $50 for unauthorized charges. And some credit card companies have $0 liability policies if your card is lost or stolen.
  • Credit cards can help you build your credit history.
  • Rewards cards let you earn rewards or cash back on purchases you’d be making anyway.
  • You can use a credit card to pay for emergencies, even if you don’t have the cash on hand.

Cons of credit cards

While there are benefits to using credit cards, there are some downsides, too.

  • If you’re not careful, you could rack up credit card debt, since you’re not limited to making purchases you can pay for with the cash you have on hand.
  • If you don’t pay your balance in full and on time at the end of each billing cycle, you’ll be charged interest on the purchases you made.
  • You may be charged fees. Common fees include late, return payment, balance transfer, cash advance and foreign transaction fees.

Debit vs. credit: Which type of card is best for you?

The type of card that’s best for you depends on your spending habits and how you plan to use it.

If you think you’ll be tempted to overspend with a credit card, then a debit card is probably a better choice. But if you’re used to sticking to a budget, are comfortable you can pay your balance on time and in full every month, and want to earn rewards and build credit, then a credit card might be a good option.

Or maybe you feel more comfortable using a debit card for everyday purchases but want to keep a credit card in your wallet for emergencies.

Ultimately, the card you use in a given situation should be the type you’re most comfortable with based on the cash you have available and how you prefer to manage your finances. But no matter what type of card you choose, it’s important to understand how it works, what your responsibility for payment is and what fees may be associated with it.

What the experts say about debit vs. credit cards

Using a debit card can benefit your budget

“A debit card is better than a credit card when you want to stick within your means. Your spending will depend on the balance you have on your account, so you can avoid impulsive and huge purchases that can get you in debt. It’s also interest-free and usually has no annual fees.”

Jeff Zhou, CEO of Fig Loans

A credit card can help with emergency expenses

“Credit cards are super useful when it comes to making large purchases or having an emergency expense by giving you extra time to pay your bill. While you typically get 30 days to pay your bill, you do want to be mindful of making more than the minimum payment as interest can accrue which can result in credit card debt.”

Miro Nikolov, CEO of Trading Pedia

Credit cards can offer better fraud protection

“When someone fraudulently racks up your credit card, you’ll lose your ability to use the available credit as they [the bank] lock you out of your account and sort out the charges. With debit, on the other hand, fraudsters steal your actual money. If they drain your checking account to zero, you’ll likely get the money back from the bank, but it takes time.

 — David Aylor, founder and CEO of David Aylor Law Offices

Is cash better than debit or credit?

“Using cash is a personal preference. Some people are all cash spenders, and some never touch cash. Some people prefer to tip in cash — and cash is always well-received by the person being tipped! Being an all-cash, or even partial cash spender, helps some people control their buying instincts because it’s harder to let go of cash than it is to just swipe a card. It makes spending more tangible.”

Deborah Johnson Miranda of Bee Money Coaching

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.