What Is the Difference Between a Credit Card and a Debit Card?

Point of Interest

In this guide, we break down the debit card vs credit card differences to help you learn why and when you’d want to use these forms of payment and how to decide what’s best for you.

Increasingly, consumers around the world are choosing to pay with plastic cards, but what are the benefits and drawbacks for debit card vs credit card use for your purchases? A 2019 report by CNBC found in an average week, 3 in 10 American adults make no purchases using cash. Credit cards and debit cards are a more secure form of payment compared to cash, and you can track all your purchases with a card in an online account.

Plus, using a credit card can help you build up a credit score, which is important if you ever plan to take out a mortgage or other type of loan in the future. When deciding between a debit card vs credit card for your purchases, use this guide to make the best choice for your financial situation.

Debit card summary

A debit card is a form of card payment typically linked to a checking account. With each transaction, the exact amount of what you charge is directly debited from your account. Using a debit card is similar to making payments by writing checks, except the transaction is registered instantly online. You’ll need to enter a custom-chosen PIN when using a debit card.

There are also prepaid debit cards, which aren’t tied to checking accounts. For these, you load funds directly onto the card and then make purchases.

Debit cards limit what you can spend. When you make a charge more than what you have available in your account, you may be charged an overdraft fee. You can also use a debit card to withdraw cash from your checking account from an ATM, but you’ll be limited to what you have available in your account.

Debit card pros

  • Control your spending based on what you have available.
  • If you lose your card or it’s stolen, you can freeze or cancel the card.
  • Use a debit card to withdraw cash at ATMs.

Debit card cons

  • Debit card usage won’t help you build up your credit score.
  • You’re limited with what you can spend, which can make it harder to make large purchases using one.

What scenarios/profiles are debit cards interesting for?

Debit cards are a good way to teach financial responsibility. Since cardholders are limited to spending what is in their account, there’s less risk of making charges you can’t afford.

Debit cards are also good to have on hand in case you need to get cash from an ATM. Some ATMs enable you to get a cash advance with a credit card, but the fees are typically much higher compared to using a debit card.

Credit card summary

With credit cards, cardholders must pay back the amount they’ve charged by each billing cycle’s due date, or else they’ll have to pay interest on top of what they owe for each purchase. There is a minimum amount that must be paid each billing cycle, or else extra fees apply.

Credit cards can be good options for financially-responsible users. Many unsecured credit cards provide rewards like cash back or travel points. When a cardholder treats a credit card like a debit card and only makes purchases they can pay back immediately, they can reap the rewards for free.

Credit cards can also help build up a credit score, as usage is reported to the major credit card bureaus. Also, credit cards are good to have in case you want to make a big purchase using a card, like furniture or kitchen equipment. As long as you make payments back toward what you owe, you can use credit responsibly and work toward building your score.

Credit card pros

  • The cards can help you increase your credit score and build a credit history.
  • Allow you to make large purchases with lines of credit.
  • Provide rewards like cash back and travel rewards you can’t get with debit cards.

Credit card cons

  • Credit card users must be financially responsible, or else they run the risk of accumulating costly debt.
  • Applying for too many credit cards in a short period of time can lower your credit score.

What scenarios/profiles are credit cards interesting for?

Credit cards are beneficial when you can make back payments in full and on time due to the ability to earn free cash or rewards just for using a credit card responsibly.

Credit cards are also essential to use if you want to build up a credit score. You can boost your score with low credit utilization, meaning you’re only using a small amount of the credit you have available. Payment history and making payments on time is also important for increasing your score. If you can implement these financial tips, you can achieve a higher credit score even with low credit usage.

How to decide which is best for you

If you’re deciding between a debit card or a credit card, consider your level of financial responsibility and what your financial goals are. If you lack self-control with spending, a debit card helps control what you can spend. If you need to build up a credit score, you’ll want to use a credit card.

If you are financially responsible, it’s good to have both a debit card and a credit card in your wallet. With both cards, you can use a debit card when you need cash from an ATM and have it as a backup form of payment if you lose your credit card. You can use your credit card for most purchases and get rewarded.

Pros and cons of a debit card

  • You’re limited in what you spend with a debit card. This can be good if you are not financially responsible but hinder you when you need to make a big purchase.
  • When you need cash, a debit card gives you the power to get it, with low or zero ATM fees.
  • Even with responsible debit card usage, it won’t positively affect your credit score.

Pros and cons of a credit card

  • You’re only limited by your line of credit with how much you can charge to a credit card.
  • If you aren’t able to make full payments for your credit card purchases, you’re going to be charged interest, which can lead to debt.
  • You can boost your credit score by using a credit card. With irresponsible usage, you’ll damage your credit score.

Security and fraud considerations

Both debit and credit cards offer more security than cash payments. Most debit and credit cards come with built-in fraud protection. The added protection means if you lose your card or notice fraudulent charges, you can contact the issuer to freeze the card so you’re not responsible for the charges.

With cash, you always run the risk of losing it. That’s not the case with debit and credit cards. You can get a replacement card within a couple of days and retain the purchasing power you’ve had.

The bottom line

Debit and credit cards are convenient ways to make payments. Both types of cards offer more secure purchase methods than cash and give you purchasing power without a lot of hassle. A credit card can lead to debt with irresponsible usage, but with responsible usage, you can boost your credit score and get free rewards in the process. A debit card is also a great tool for accessing cash when you need to from an ATM, but having both can be beneficial as long as you use them responsibly.

Nicki Escrudero

Contributing Writer

Nicki Escudero is a finance writer with more than 18 years of journalism experience. Nicki is passionate about helping people discover tools that improve their financial fitness.