Credit Card vs Debit Card: What’s the Difference?

Key Takeaways:

  • Credit cards allow you to access a line credit from a bank while debit cards take money out of your bank account.
  • Credit cards offer greater protection against fraud than debit cards that are linked to a bank account.
  • Newer debit cards provide more protection, while many credit cards do not charge an annual fee.
  • It is important to compare credit cards with debit cards to decide which is best for your situation.

Debit cards and credit cards are very similar, with expiration dates, 16-digit card numbers, magnetic strips, and often EMV chip technology. 

While they can both be used to make online purchases, there is one key difference: debit cards use your bank funds to make purchases, while credit cards let you borrow money from the bank.

Most people have at least one debit or credit card, and while they are convenient, there are important differences between them.  

Let’s compare credit vs debit cards to help you choose which one will best suit your spending habits and personal situation.

Here’s a quick summary of the differences between credit cards and debit cards:

Credit CardsDebit Cards
Borrow funds from the bankMoney is deducted from your account
Get rewards like cash back, travel rewards and bonus pointsNo cash back or rewards
Helps you build creditWon’t help you build credit
Pay interest rates and feesNo interest rates
High spending can lead to debtHelps you avoid debt
May carry an annual feeNo annual fees

What is a credit card?

A credit card is a payment card issued by a financial institution. 

It allows the cardholder to borrow money from that institution and the terms require the cardholder to repay the money with interest.

There are many types of credit cards:

  • Standard cards provide credit lines to users for purchases, cash advances, or balance transfers. They often don’t have an annual fee.
  • Premium cards provide perks like airport lounge access, concierge services, and access to special events. However, they typically have higher annual fees.
  • Rewards cards provide cash back, points or other types of benefits to customers depending on how they use their cards.
  • Balance transfer cards typically offer low introductory interest rates, and no fees for transferring a balance from another credit card.
  • Secured credit cards require an initial cash deposit, which is held by the issuer as collateral.
  • Charge cards don’t have a spending limit, but they often won’t allow unpaid balances to be carried over from month-to-month.

Credit card holders can enjoy benefits like cash back on purchases, discounts, travel points, and other perks that are not available to debit cardholders. 

The rewards programs for credit cards will vary and could be on a flat-rate or tiered basis. 

💡 Read more: Compare credit cards and prequalify online

Pay attention to the expiry dates of any rewards on your cards and review all the redemption options available.

The Pros of Using Credit Cards

While credit cards have certain advantages over debit cards, they also come with some drawbacks. Let’s take a closer look at what credit cards can do for you, starting with the benefits.

Establish a Credit History

Your credit report will reflect your credit card usage. This includes both positive items like on-time payments, low credit utilization rates and late payments. The information from your credit report is used to calculate your credit scores.

Your credit report information is then used to calculate your credit scores. Credit card companies often offer credit score monitoring free of charge, and credit tracking as a perk. This allows you to keep track of your credit building progress.

Warranty and Purchase Protection

Some credit cards may provide additional warranties and protection for items that are purchased.

You might be entitled to a refund or replacement if an item you bought with a credit card that offers warranty and purchase protection fails, is damaged, or is stolen.

Even after the manufacturer’s warranty ends, this benefit can still be valid. It is important to ask your credit card provider if they would reimburse the expense.

Every card has a distinct policy, but free annual fee credit cards typically provide less security than premium credit cards.

Additionally, if an item is sold for less within a specific period of time, your purchase and pricing protection policy can refund the difference in price.

Fraud Protection

In general, credit cards are safer than debit cards. If the customer promptly reports the theft or loss, federal law caps their culpability for any purchases made after the card vanishes at $50.

However, a lot of credit card companies, including Visa and Mastercard, go a step further and, in some cases, offer zero fraud liability, meaning that you won’t be charged for any fraudulent conduct.

The Electronic Fund Transfer Act provides debit card customers the same protection against theft or loss, but only if it is reported within 48 hours.

The card user’s liability increases to $500 after 48 hours. There is no liability after 60 days.

Other Credit Card Benefits

The Fair Credit Billing Act permits credit card users to dispute unauthorized purchases and to request a refund if the merchant agrees to reverse the charge. 

Debit card theft victims aren’t entitled to a refund until the investigation is complete.

This implies that you will lose the funds in your account if your debit card is used fraudulently. You can contest the allegations, and a probe will be launched; however, it might take some time before the money is returned.

The missing monies could put you in a tough financial situation if you have bills that are due during the fraud investigation.

Your personal money is secure if they have your credit card information because they are not taking it directly. While the money in your account that belongs to you is safe, you can contest the charges and ask for a refund.

The credit card holder is not responsible for any disputed charges. The amount is typically deducted immediately and then restored only if the merchant resolves the dispute.

While some debit card providers offer no liability protection to customers, the law is more accommodating for credit cardholders.

When renting a car, a further significant distinction between credit cards and debit cards becomes clear. To safeguard their rental, several car rental companies demand that consumers provide credit card details.

Many credit cards also provide some level of rental automobile insurance protection. In general, premium credit cards offer the best insurance protection.

Customers using debit cards might have to consent to the rental company taking a few hundred dollars as a type of guarantee deposit out of their bank account.

Additionally, the majority of debit cards do not provide insurance coverage for rental automobiles, which might significantly raise the cost of the rental.

The Cons of Using Credit Cards

Credit cards have several drawbacks, including potential debt buildup, credit score impacts, ongoing costs, and risk.

Spending Can Lead to Debt

At first, you are spending the bank’s money when you make a purchase with your credit card. You must repay the money borrowed, potentially with interest.

The credit card issuer will require a minimum payment each month. It is important to budget for the money spent on your credit card and to still live within your means.

Otherwise, you may have difficulty keeping up with your monthly payments. This problem would be compounded if you have high balances on multiple credit cards.

Credit Score Impacts

Your FICO score can be improved by paying your bills on time and keeping your credit card balances low. 

Your FICO score may also decline for reasons such as the following:

  • Late credit card payments
  • Carrying high balances or having a high utilization ratio
  • Closing too many old accounts
  • Applying for credit too often

You can set up credit card alerts so that you are notified of card balances and payment due dates. This will help you to pay on time and keep your credit limit from maxing out.

Fees and Interest

A credit card is basically a short-term loan. You will have to repay what you borrowed with interest. Your annual percent rate (APR) is calculated using the interest rate and fees charged by the credit company.

You will pay more to carry a balance each month if the APR on your card is higher.

It is important to know whether your card has an annual fee, the charges associated with a balance transfer, the penalty for a late payment, and if there are any foreign transaction fees

The annual fee for a credit card will be higher if it offers more benefits and has a better rewards program.

What is a Debit Card?

A debit card is a payment card that takes money directly from a consumer’s checking account, rather than borrowing it from a bank.

While standard debit cards draw on your bank account, there are two types that do not require customers to have a checking account or savings account.

  • Federal and state agencies issue electronic benefits transfer (EBT) cards that allow eligible users to use their benefits for purchases.
  • Prepaid debit cards allow people who don’t have access to a bank account to make electronic purchases up to the amount preloaded onto the card.

When reviewing fees for credit and debit cards, frugal customers may prefer debit cards as there are often fewer or no fees. The main concern with a debit card is spending more than your account balance, which would incur an overdraft charge.

The no-fee benefit does not apply to prepaid debit cards, which often charge usage and activation fees.

Credit cards, on the other hand, often carry annual fees, over-limit fees, late payment fees, and other potential penalties. The monthly interest is also charged on any outstanding balance.

The Pros of Using Debit Cards

Like credit cards, debit cards have both pros and cons. Let’s start by reviewing the upsides.

Avoid Debt

A debit card allows the user to draw from funds they already own. This lowers the risk of getting into debt. Retailers understand people spend more on purchases when they use credit instead of cash. 

With debit cards, impulse spenders can avoid the temptations that a credit card may enable, which will help them stay within their budget.

This is a helpful strategy to avoid high-interest debt.

Fraud Protection

Moreover, debit cards, especially those issued by payment processors such as Visa and Mastercard, are starting to offer stronger fraud protection like those provided by credit cards.

It is important to report fraud and theft as soon as you become aware of it. The timeline in which it is reported determines your liability for fraudulent purchases. 

You may be held responsible for any or all losses if you wait too long to notify the bank that your card was used for fraudulent purchases.

Save on Charges

Some retailers assess a higher surcharge for consumers who use credit cards. In this case, using a debit card may save you money. Depending on the surcharge amount, paying with a debit card may be a much more affordable option.

There Is No Annual Fee

While many credit cards have an annual fee, debit cards do not. You don’t have to pay a fee to withdraw cash from your bank’s ATMs using your debit card.

For the convenience of accessing cash, credit cards can charge a cash advance fee along with a high interest rate. To maintain a checking account, however, you might have to pay additional fees.

Credit card cash advances don’t come with a grace period. Instead, interest starts accruing immediately.

The Cons of Using Debit Cards

Like credit cards, debit cards have the greatest downsides in terms of cost and credit score.

There Are No Rewards

You generally will not be able to earn points, miles, or cash back on debit card purchases. Some debit card accounts may have rewards associated with purchases using the account, but it is rare.

You could miss out on valuable rewards if you only use a debit card to make purchases.

They Don’t Build Credit

Lenders can tell that you have the ability and propensity to pay back loans if you have a high credit score. You are not taking out a loan from a bank when you make purchases with a debit card that is connected to your bank account.

Over time, it will be challenging to establish credit due to this.


Although debit cards do not typically have an annual fee, there may be other fees for opening or maintaining a checking account. 

These fees may include monthly maintenance fees, overdraft fees if your account is overdrawn, returned-item fees, foreign ATM and transaction fees, foreign ATM fees, and non-network ATM fees if your debit card is used at another bank or financial institution.

Are You Eligible to Earn Rewards by Using a Debit Card?

Typically, no. Although debit cards do not earn miles or points for every purchase, accounts from which they draw money may offer perks to users in return for certain transactions.

A purchase round-up feature on standard debit cards allows users to transfer small amounts to a savings account. This feature is not available with credit cards.

Are All Credit Cards Subject to Interest?

Although you might see 0% interest promotions on credit cards, they eventually charge interest for balances that are carried over from month to month. 

The annual percentage rate (APR) is the basis of this interest rate. Pay your balance every month in full to avoid long-term interest charges.

Is it Possible to Get a Credit Card for Anyone?

Although most people are eligible to apply for and get a credit card, they may not be eligible for certain credit cards. A secured credit card is an option for those with poor credit or no credit. 

The credit line is secured by a deposit that the cardholder makes when they open the card. On the other hand, higher credit scores will get you more attractive rewards cards.

The Bottom Line

When it comes to choosing between a credit vs debit card, there are important considerations. Although credit and debit cards might look similar, their benefits and drawbacks can be quite different. 

Credit cards are an essential tool for your financial journey if you value building credit and earning rewards

A debit card is better if you want to have tighter control over your finances. You should be aware of all the fees associated with each account, as well as the pros and cons of each, to choose the type of card that is best for your personal situation.

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Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

Financial information reviewed byRoss Loehr - CFP®, MBA
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Last Updated: November 3, 2022

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