Personal Finance
Advertiser Disclosure

Debit Card vs. Credit Card: Differences and Which Is Better for Payments

Debit Card vs. Credit Card
iStock

Our evaluations and opinions are not influenced by our advertising relationships, but we may earn a commission from our partners’ links. This content is created independently from TIME’s editorial staff. Learn more about it.

Updated March 7, 2024

Debit cards and credit cards may look alike on the surface—and they share some key features—but the two products are quite different. A debit card allows you to use the funds you’ve either loaded onto the card or have in your linked bank account, while a credit card lets you borrow money from a fixed credit line and repay the balance over time. Here’s what you need to know about debit cards and credit cards.

Credit cards vs. debit cards: Key differences

Debit cardCredit card
Source of funds
Your own money
Borrowed money
Qualification
No credit check required
Qualification is usually credit-based
Credit building
Does not build credit
Does build credit
Consumer protections
Limited
Several consumer protections
Rewards
Most don’t earn rewards
Many credit cards earn rewards
Risk of debt
Low risk
High risk
Interest
Don’t pay interest
You may pay interest

What is a credit card?

A credit card is a type of revolving loan that usually includes a plastic card for convenient spending. Financial institutions grant credit card accounts to qualified applicants. Most credit cards are unsecured, such as Chase Freedom Unlimited®, and are issued based on your credit rating and financial ability to cover the associated bills.

Some credit cards are secured. Secured credit cards require a cash deposit upfront. This secures the credit limit for the card issuer, making them more likely to lend to borrowers with poor credit or no credit history.

Credit cards are designed for convenient borrowing. You can use them at retailers to buy products and services over the phone, online, and in person. You can also withdraw money from credit card accounts as a cash advance.

Every credit card has a credit limit, which is the amount of money you can borrow. For example, if your account’s limit is $1,000, you have that much money available to you.

Many credit cards include rewards programs and perks. You can earn cash back, reward points, or travel miles each time you spend. Other common card benefits include travel insurance, credits for certain purchases, and entry into airport lounges.

card_name

Chase Freedom Unlimited®

Chase Freedom Unlimited®

Credit score
credit_score_needed
Intro APR
intro_apr_rate,intro_apr_duration
Balance transfer intro apr
balance_transfer_intro_apr,balance_transfer_intro_duration
APR
reg_apr,reg_apr_type
Annual fees
annual_fees
Welcome offer
bonus_miles_full

The card_name is a solid flat-rate earnings card with annual_fee_disclaimer annual fee. Although the 1.5% cash back doesn’t seem impressive at first glance, it becomes more valuable when combined with other rewards cards from Chase that can be redeemed for a far greater value.

This card is recommended for everyday use, whether for doctor copays or big box store purchases. It can be a large earner for cardmembers who want to get the most out of their everyday spending.

How do credit cards work?

When you use a credit card to make purchases or withdraw cash, you borrow money against the account’s predetermined credit line.

You will not be charged any interest on your purchases during the grace period, which is usually 25 to 30 days. So if you charged $500 and repaid the entire sum by the due date, there would be no financing fees added to the balance. The exceptions to this rule are:

  • 0% APR cards. If you open a new card with a 0% APR promotional rate for a specific number of months, you can use the card and gradually pay down the balance during the promotion without being charged interest.
  • Cash advances. There is no grace period if you take cash out of your account instead of using the card for purchases. Interest will start accumulating immediately.

At the end of the billing period, you will receive an account statement showing all the transactions you made in that cycle and a bill for the total amount you owe. To keep your account in good standing, you must pay at least the minimum payment by the due date. If you revolve a balance, interest will be added to the debt. Since credit card interest compounds, it will be calculated on debt that has already grown larger with applied interest. The higher the interest rate (expressed as APR for annual percent rate) is, the more the revolved debt will cost you.

Here are some common fees often associated with credit cards:

  • Annual. Some credit cards have an annual fee. The fee can be high for accounts with valuable rewards programs, but if you take full advantage of the various card perks, you can still come out ahead.
  • Late payment. You will probably be charged a late fee if you don’t pay by the due date. The fee can be as high as $30 or higher.
  • Over-limit. If you exceed your credit limit, the issuer may charge you a fee of up to $35. However, the fee can’t exceed the amount you went over, so if the limit is $1,000 and you went over by $10, the maximum over-limit fee would be $10.
  • Cash advance. If you withdraw cash from your credit line, you will be charged a cash advance fee, typically between 2% and 5% of the amount you take out.
  • Foreign transaction. Unless your credit card does not charge foreign transaction fees, expect to be charged between 1% and 3% of your transactions when you use your card in international locations.

Pros and cons of using credit cards

Pros:

  • Immediate access to funds
  • The ability to earn rewards
  • Strong consumer protection

Cons:

  • Easy to overspend and get into debt
  • Interest rates are very high
  • High balances can hurt your credit score

When should I use a credit card?

You should only use a credit card when you know you can afford to send at least the minimum payment by the due date. However, it is usually best to pay the entire bill. This way you will stay out of debt and not be charged interest.

It can be a good idea to use your credit card when you can earn valuable rewards. You will profit from rewards if you pay the balance in full to avoid interest.

Another reason to use a credit card is to take advantage of embedded perks. For example, if you have a co-branded credit card with an airline, you may be able to enjoy early boarding, complimentary bag check, and free entry into the VIP airline lounges.

Credit cards are ideal for large purchases due to the consumer protection they offer. For example, if you purchased something that was defective, misrepresented, or never arrived, you can dispute the charges with your issuer. And if someone uses your credit card without authorization, the Fair Credit Billing Act limits your liability to $50.

What is a debit card?

A debit card is a plastic card that allows you to spend money from a connected bank account (usually a checking account). So if you have an account with a bank such as Chase, CIT Bank, or First Citizens Bank, you can spend up to the full balance of your account or the daily card limit.

Prepaid debit cards work a bit differently. You have to preload the card with funds before you can spend. You can also get prepaid cards from retailers, grocery and drug stores, online, over the phone, or from some banks and credit unions. If you order a prepaid debit card online, you may be issued a virtual card or have to wait for a physical card in the mail.

There is no credit check required for either type of debit card because the financial institution is not lending you any money. Therefore the financial institution will not notify the credit reporting agencies of your usage.

To facilitate debit card transactions, most companies partner with Visa or Mastercard. When your card has one of these logos on it, you will know you can use it anywhere these payment processing companies are accepted.

NetSpend

Netspend® Visa® Prepaid Card

Netspend® Visa® Prepaid Card

Cash reloads fees
Up to $3.95
Free ATM network
Not available

How do debit cards work?

When you open a bank or credit union checking account, you will also be issued a debit card. If you agree to overdraft coverage, you may be able to exceed your account balance when you spend. For a fee, the financial institution will cover the amount you overspent up to a predetermined limit. This can get expensive, though, so it's best to only use overdraft for emergencies.

Your bank account statement will include any debit card transactions. Checking your account activity can help you detect early evidence of fraud. According to the Electronic Funds Transfer Act (EFTA), if someone else uses your debit card and you notify your financial institution within 48 hours, you can be liable for a maximum of $50.

Between 48 hours and 60 days, however, your liability increases to $500. After that, you can be on the hook for all of the fraudulent transactions.

Pros and cons of using debit cards

Pros:

  • No credit check required
  • No annual fees
  • Using your own money, so you’re not going into debt

Cons:

  • Doesn’t build credit
  • Very few rewards and perks offered
  • Minimal fraud protection compared to credit cards

When should I use a debit card?

Debit cards are ideal for making smaller purchases when you know there is enough money in your account to cover the transaction. Because a debit card has minimal consumer protection, you will only want to use it when you are sure it is safe from theft and fraud.

Debit cards are not recommended for online transactions or for purchases where you want to be covered in the event that the item is not delivered properly or is not what you ordered.

Debit card vs. credit card: Which is safer?

Because credit cards offer the highest level of consumer protection, they are safer to use for expensive purchases and items that you buy online. However, debit cards are safer when you want to protect yourself against overwhelming and expensive consumer debt.

TIME Stamp: Understanding the differences between these two cards could save you a lot of money

While debit cards and credit cards both allow you to make purchases at a point of sale system, cash register, over the phone, or by entering the account information online, they are different products.

Every credit card charge you make results in a loan that you will have to repay. Every debit card transaction you make depletes the balance in your checking account or the money you loaded onto the card. When weighing the two, consider whether or not it makes more sense to borrow money or use your personal funds.

Frequently asked questions (FAQs)

Can you earn rewards with a debit card?

Most financial institutions do not have rewards programs for debit cards, and the programs that do exist are pretty modest. Rewards are commonly offered with credit credit cards.

Do all credit cards charge interest?

All credit cards charge interest, but only on balances that exceed the grace period. 0% APR cards for purchases and balance transfers will give you a break on interest, but only for a specified number of months. After that, the regular rate will go into effect.

Can anyone get a credit card?

There are credit cards for just about every applicant. Secure credit cards are suitable options if your credit scores are low or undeveloped. A student card is best if you are enrolled in college and haven’t established your credit yet.

Can you build credit with a debit card?

Because debit cards are not reported to the credit bureaus, your account activity will not affect your credit history or scores. If you want to build credit, use a credit card for purchases you know you can repay quickly. This will help increase your credit score.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.

1.2080.0+1.64.13