What's the Difference Between Credit Cards and Debit Cards?
Although credit card and debit cards almost look the same with 16-digit card numbers, expiration dates, and personal identification number (PIN) codes, there are lots of differences between them. Learn when to correctly use them could substantially affect your pocketbook.
What is a Credit Card?
A credit card is by a financial company, for example, a bank, which lets cardholders borrow funds and loans with which to pay for goods and services due to their credits. Cardholders promise and agree to pay the institution back with a certain amount of interest decided by the institution.
A credit card is more convenient to use than a debit card, because it can reap cash, discounts, travel points, etc. However, this is largely reflected in the person’s credit score. The financial company will review their credit score to decide the given interest rate and whether to give out loans.
Compare to the debit card, a credit card offers more protection. If the consumer reports they're lost in a timely manner, then their maximum liability for purchases made after the card disappeared is $50. According to the Electronic Funds Transfer Act, it gives debit card customers the same protection but with a shorter limit of time: 48 hours. After 48 hours, the card user's liability rises to $500; after 60 days, there is no limit.
Besides, according to the Fair Credit Billing Act, credit card users can dispute unauthorized purchases or purchases of goods that are damaged or lost during shipping, which is unavailable for debit card users.
What is a Debit Card?
A debit card is a payment card that deducts money directly from a consumer’s checking account to pay for a purchase. One commonly used debit card will be Visa or MasterCard. Consumers prefer to use debit cards because there are few or no associated fees unless users spend more than they have in their account and incur an overdraft fee.
On the other hand, credit cards often require annual fees, over-limit fees, late-payment fees, and a plethora of other penalties, in addition to monthly interest on the card’s outstanding balance.
Written and Researched by Annette Zhang