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Debit cards and credit cards may look the same and function similarly when you use them to make purchases, but there are some key differences that can help you determine which one is the better payment option for you.
For starters, debit and credit cards pay for purchases differently: Debit cards pull money directly from your bank account, while credit cards allow you to make a purchase now and pay for it later. Debit purchases are limited by the amount of money you have in your bank account, while credit card purchases are only restricted by your card's credit limit. Both offer convenience and ease, but it's important to compare benefits, fees and risks when deciding which is best for you.
| Credit Cards | Debit Cards |
|---|---|
| Borrow money for purchases now and repay it later | Pay for purchases with the money in your bank account |
| Spending limit set by the card issuer | Spending limit equals your bank account balance |
| Can help you build credit if used responsibly | Typically no impact on your credit |
| May offer rewards and other valuable perks | Most don't offer rewards or other valuable perks |
| Charge interest on balances carried over from the previous month | No interest charges |
| Typically require a credit check when you apply | Usually no credit check when you apply |
What Is a Credit Card?
A credit card is a type of revolving credit that allows you to make purchases on a line of credit. Each month, you'll receive a statement from your card issuer detailing your purchases from the previous billing period, your total balance and the minimum payment required.
You'll then have at least 21 days to pay at least the minimum amount due. If you pay in full, however, you typically won't incur any interest on the statement balance. Any balance that is carried over will be subject to the card's annual percentage rate (APR).
Other notable credit card features include:
- Credit limit: Your card issuer will determine how much you can borrow based on your credit history, income, existing debt and other factors. Each transaction uses up a portion of your available credit, but making a payment can restore that spending power.
- Rewards: Many credit cards offer rewards in the form of welcome bonuses and cash back, points or miles for every dollar you spend. Depending on which card you choose, you may be able to redeem your rewards for cash back, travel, gift cards, online shopping and more.
- Other perks: Depending on which card you choose, you may enjoy other benefits, such as an introductory 0% APR promotion, statement credits on select purchases and a variety of travel perks.
- Security: Credit cards use a few different security measures to prevent fraud, including CVV codes and EMV chip technology. Some cards even allow you to create virtual card numbers when you shop online to keep your main card number out of the hands of criminals.
- Credit building: With responsible use, you can use a credit card to build and maintain a good credit score. However, racking up a large balance or missing payments could damage your credit.
- Fraud liability: Most credit card issuers offer zero-liability fraud protection, which means that if someone uses your credit card without your permission, you won't be on the hook for any of their purchases. Even if there's no zero-liability policy, the most you could legally be liable for is $50.
- Fees: Credit cards will typically charge a fee for cash advances, balance transfers and late or returned payments. Others may also charge a fee on international purchases and even an annual fee for the privilege of using the card.
Pros and Cons of Credit Cards
There are both benefits and drawbacks to consider when using credit cards. Here's what to keep in mind.
Pros
- Many offer valuable benefits: No two credit cards are exactly the same, but even some credit cards for bad credit offer rewards on your everyday purchases. Other valuable perks can include welcome bonuses, 0% APR promotions, shopping and trip protections, travel credits and many more.
- Can help you build credit: If you maintain a low credit utilization rate and pay on time every month, a credit card can help you increase your credit score over time. You can even avoid interest charges if you always pay your balance in full.
- Offers great fraud protection: Between the security measures and zero-liability fraud protection that most card issuers offer, you generally don't have to worry about losing money to fraudsters.
Cons
- Could damage your credit: Maintaining a high utilization rate or missing a payment by 30 days or more could hurt your credit score instead of helping it.
- Credit card debt can be risky: If you use a credit card to spend more than you can afford to pay off, the high-interest debt could put pressure on your budget and pose a risk to your financial well-being.
- You may not qualify: Credit card issuers typically require a credit check when you apply. While there are credit cards available to borrowers across the credit spectrum, there's still no guarantee that you'll be eligible for the card you want.
What Is a Debit Card?
A debit card is a payment method that's linked to your checking account, money market account or a prepaid debit card account. When you make a purchase with the card, the issuing bank will immediately pull the funds from your linked account to complete the transaction.
As a result, you can typically only spend up to your account balance—though some banks may offer overdraft protection. Here are some other debit card features to understand:
- Card benefits: Some debit cards offer rewards on your everyday purchases, usually in the form of cash back. The underlying account may also offer other perks, such as ATM fee reimbursements, interest on your account balance and even welcome bonuses.
- Security: Debit cards may require a PIN on certain in-person transactions, and many also use CVV codes and EMV chip technology to minimize potential fraud.
- Fraud liability: Like credit card issuers, some banks offer zero-liability fraud protection on debit cards. If you don't have this feature, however, you could be liable for up to the total amount of an unauthorized transaction, depending on when you report it.
- Fees: Both bank accounts and prepaid debit cards may charge a monthly service fee, though some financial institutions offer a waiver if you meet certain requirements. Other potential fees include out-of-network ATM fees, overdraft charges and international transaction fees.
Pros and Cons of Debit Cards
As with credit cards, it's important to consider both the advantages and disadvantages of debit cards before using one. Here's what to know.
Pros
- No threat of high-interest debt: When you use a debit card, you're spending your own money rather than a card issuer's. While some banks may offer overdraft protection, which is technically debt, there's no ongoing interest rate you have to worry about. Debit cards also typically charge fewer fees than credit cards.
- No credit requirement: You typically don't need to undergo a credit check to get approved for a debit card.
- Some offer decent perks: While you'll typically get more valuable perks from a credit card, some debit cards offer solid perks, such as cash back and fee-free cash withdrawals.
Cons
- Fraud protection is limited: While some financial institutions offer zero-liability fraud protection on their debit cards, federal law doesn't provide as much relief for those without that protection as it does for credit cards.
- Generally won't help you build credit: Because you aren't using debt, a debit card typically won't help you build your credit history.
- No help in emergencies: If you're facing a financial emergency, a debit card typically won't let you spend money you don't have. Overdraft protection could provide some coverage, albeit costly, but even that's limited.
Should You Use Credit or Debit?
The decision to use a credit or debit card is a personal one, so it's important to understand your situation and goals to determine which one is right for you. Here are some considerations:
- Spending habits: If a line of credit would put you at risk of overspending, you may be better off with a debit card. However, if you have no problem sticking to a budget, a credit card could reward you on your everyday spending.
- Access to cash: If you like to use cash, you can avoid credit card cash advance fees by using a debit card to make withdrawals at an in-network ATM or a local bank branch. If you prefer to use a card, however, either option works.
- Credit goals: If you want to work on building your credit history or maintaining a good credit score, your best bet is a credit card.
- Fraud protection: Even if your debit card offers zero-liability fraud protection, unauthorized purchases can impact your ability to pay other bills until the funds are restored. If you want maximum protection from identity thieves, a credit card may be the answer.
You may also consider other preferences. For example, if you want a great welcome bonus or special perks, you're more likely to get what you want from a credit card. While some may charge annual fees, you may be able to get enough value to offset that cost.
Frequently Asked Questions
Generally, yes. Credit card issuers are more likely to offer zero-liability fraud protection than debit card issuers.
When using your debit card in person, you may be able to opt to run the transaction as credit instead of debit to avoid needing to enter your PIN. This is also referred to as a signature-based transaction rather than a PIN-based transaction. Online debit card purchases typically run as signature-based transactions.
Some financial institutions offer debit card rewards, but it's a relatively rare feature.
Most credit cards charge interest on purchases, balance transfers and cash advances. However, there are some cards that offer introductory 0% APR promotions, giving you a break from interest for a set period.
You could also avoid interest by choosing a hybrid debit-credit card, which functions similarly to a prepaid debit card but also reports payments to the credit bureaus.
The Bottom Line
Both credit and debit cards come with benefits and drawbacks, so it's important to understand your needs and goals to determine which one to use for most of your spending. If you want to use a mix of both, consider a debit card that can offer some credit-building features.
The Experian Smart Money™ Digital Checking Account & Debit Card can help you build credit without debt by linking to Experian Boost®ø, which gives you credit for eligible bill payments after three months of payments. See terms at experian.com/legal.