When a person wants to buy something but has no cash, the alternative is a charge to his bank or lender. People use both debit and credit charges to pay for the things they buy, but automatic credit charges have been around a lot longer than because they have been easier for banks. When consumers use debit, they withdraw money directly from their assets (such as using a check), but when they use credit, the bank itself pays for the transaction. Before the invention of electronic communication and Personal Identification Numbers, consumers used physical paperwork which tended to take longer to process than credit.
Credit
When a person uses credit to pay for something, he is essentially asking for a loan from his bank using an existing line of credit that he has established. The bank pays for the purchase, and the consumer pays the bank back within a certain time. If he does not pay on time, then interest fees and other extra payments start to accumulate.
Debit
A debit occurs when a person uses her own funds that are stored in a bank account to pay for a transaction, such as when a consumer writes a check. The money comes directly from the account, and the bank only facilitates the transaction, gaining a small fee that the merchant pays for the service. This is why businesses may pay fees for some cards (such as Visa or Discover) but not accept others. This is known as a debit because the consumer is withdrawng money from an account and will end up with less money overall.
Cards
Today, cards are the primary method of running both debit and credit charges. Credit cards work via electronic communication to the lender, creating a mini-loan contract for the transaction. Debit cards are referred to as check cards for a reason--they provide the electronic version of a check, complete with a PIN number for security.
Advantages
The advantage of a credit charge for the consumer is speed and safety. Credit does not take money immediately from an account, so the consumer does not need to worry about whether he has enough money for a charge. Debit payments, however, forgo the creation of a loan and the consumer does not need to worry about payments or late fees when using a debit card.
Protection
Both debit and credit cards have certain types of protection associated with them, but credit cards offer better protection. Laws require lenders to limit borrower liability to only $50 (sometimes less) if the card is stolen. Debit card liability, or how much the card holder must pay in fees in case of a lost or stolen card, starts at $50, but after a couple days it goes up to $500, and after a couple months the account holder may have to pay the entire balance that was used when the card was stolen. Visa and MasterCard may offer some zero liability protection for their debit cards, but this comes with restrictions.
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