6 Key Differences Between Debit Card & Credit Card

Written By Sushma Singh

Two identical-looking cards, yet they function so differently? Sounds confusing, right? Let’s spot the key difference between a credit card and a debit card.

Many a time, a person gets baffled about the difference between the Debit Card and the Credit Card. Both of them are used to make payments. They both look similar, and both of them offer the convenience of not carrying cash everywhere. And both provide security from thefts.

After all this, it is very common to get confused between the two. But, still, there is a broad line of distinction. Here are a few differences that will clear your mind about the same.

Debit Card VS Credit Card: 

Debit cards and credit cards are basically two identical rectangular plastic cards with 16 digit numbers, expiration date, PIN number, and a CVV number at the back. So, if it looks this much identical, then what’s the difference?

Well, to understand that, we must first know what is a debit card and credit card and how do they work?

What does Debit Card mean?

A Debit Card pulls the money directly from your bank account when you make a purchase. The amount can only spend up to the amount present in the account. For example, you can’t purchase an article worth Rs.15, 000 if you only have Rs. 10,000 present in your bank account.

The money taken is debited to your account as well, and therefore no interest is charged. When you swipe the card for a payment, you receive an SMS or email. This helps you keep track of all your Debit Card spending. These alerts depend on the service providers when they send them. They might alert you after each transaction or together every month.

For the usage of a Debit Card, you need to have a PIN present with you. It can also be used as ATM cards for withdrawing cash directly from your bank account.

What does Credit Card mean?

A Credit Card allows you to take money on credit, which must be repaid after a certain time. During the re-payment of the credit, you need to pay the principal amount and interest as well. The interest charged is high, and if you do not balance Credit Card’s payment, it can hamper your credit score. Though it is recommended to pay the full due amount but sometimes under certain situations, the minimum due amount can also work.

You can borrow money against a line of credit known as the card’s credit limit. Your income and your credit history determine this limit. These both are the proof of your creditworthiness and, therefore, higher your creditworthiness, higher your credit limit.

A Credit Card is responsible for building up your credit score. It can be both positive and negative. Positively, if your credit score is good, it can avail you better credit offers for the future. As on the other hand, a negative credit score will make you get credit facilities on a higher rate of interest.

6 Key Differences Between Debit Card & Credit Card

  • Convenience while traveling – it is considered that a credit card is much easier and safe to keep while traveling. It is preferred more than carrying a Debit Card, cash, or a checkbook. Credit card avoids money to be frozen while in a debit card if balance is unavailable, it can freeze the money. For spending a stress-free vacation, it is better to take a Credit card.
  • Security issues – However, both the cards are very secure; the Debit Card is required to be more taken care of than the Credit Card. A debit card is directly linked to the account, and if it is stolen and used, direct money from the account is transferred, which is very difficult to recover. On the contrary, Credit Card, if misused, can be reported, and transactions from settling can be stopped as it is the bank’s money.
  • Control on spending – Using a Debit card helps you only make required spending. Sometimes, rational decisions are not made, and one tends to buy unnecessary and expensive stuff. Using a debit card will keep you in your limit. The debit card also helps you in avoiding getting into debt traps.
  • Determination of credit history – credit cards are responsible for strengthening or hurting your credit score. Your credit card has a vital part in your credit history, while debit card does none. Also, if you want to establish a credit history for the first time, a credit card is more useful.
  • Easy withdrawal – Debit cards enable you to withdraw cash from the ATMs conveniently. It is contradictory to credit cards in which it is not possible unless you want to disturb your credit score.  
  • Interest payment – Debit cards do not include any interest payments. And also, if it does, the charges are very nominal, whereas credit cards include high-interest payments. These interests have to be paid every month.

Both debit and credit cards are useful in their fields. The importance lies in where and how one uses them. If a comparison is drawn between the two, it will be hard to determine which one is better than the other. In the end, the choice is up to you.

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Sushma is a full-time blogger and financial expert. Join Sushma and 10,000 monthly readers here to learn how to save and invest your money wisely.

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