What is the difference between a debit card and a credit card?

by paolo.leuschke , in category: Banking and Credit , 10 months ago

What is the difference between a debit card and a credit card?

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2 answers


by millie , 9 months ago


A debit card and a credit card are two types of payment cards with distinct differences:

  1. Source of funds: A debit card is linked directly to the cardholder's bank account, allowing them to access the funds available in their account. On the other hand, a credit card extends a line of credit by the card issuer, allowing the cardholder to borrow money up to a certain limit.
  2. Payment mechanism: When a debit card is used for a transaction, the funds are immediately deducted from the cardholder's bank account. With a credit card, the cardholder is essentially borrowing money, and they are required to repay the amount borrowed to the credit card issuer based on the terms and conditions.
  3. Interest and fees: Debit cards generally do not involve interest charges or fees, as they use the cardholder's own money for transactions. Credit cards, however, may have interest charges if the cardholder doesn't pay off the borrowed amount in full within a grace period. Additionally, credit cards may involve fees such as annual fees, late payment fees, or transaction fees.
  4. Credit history: Debit card usage does not impact an individual's credit history as it does not involve borrowing or credit. Credit card usage, however, is reported to credit bureaus, and if used responsibly, can help build a good credit history, while irresponsible use can have negative effects on credit scores.
  5. Limits: Debit cards typically have spending limits based on the available funds in the linked bank account. Credit cards, on the other hand, have a credit limit set by the card issuer, which may be higher than the individual's available funds.
  6. Consumer protection: Both debit and credit cards offer some consumer protection against fraud and unauthorized charges. However, credit cards often provide more robust protection and dispute resolution processes, as they are subject to laws like the Fair Credit Billing Act in the United States.

In summary, the main difference between a debit card and a credit card is that a debit card uses funds directly from the cardholder's bank account, while a credit card allows the cardholder to borrow money from the card issuer, resulting in the need to repay the borrowed amount later with interest, if applicable.

by cornelius.fay , 4 months ago


Additionally, debit cards are typically used for everyday transactions like purchasing goods and services, while credit cards are often used for larger expenses, online shopping, and building credit history. Furthermore, credit cards may offer rewards programs, cashback benefits, and other perks not typically associated with debit cards.