The Difference Between Credit Cards & Debit Cards

Debit cards and credit cards have some things in common. Both are used to access money for purchases; and both are used instead of cash as a method of convenience. The biggest difference between a debit card and a credit card is who owns the money which is being used. The next biggest difference is the limits placed on these types of cards. Here are a few more differences.

Financial

Debit and credit cards are linked to financial accounts which are handled differently. Debit cards are tied directly to an account at a bank; while credit cards are tied to a line of credit which has been made available to you. Debit cards are funded directly from an account you own. Credit cards are funded by an account owned by the financial institution. Debit cards use money you already have. Credit cards use money on loan to you which must be repaid later.

Limitations

Debit cards cannot help build a credit history; there is no record made outside of your financial institution that you used funds drawn on from the card. Debit cards also cannot be used at most Internet shopping sites because you need a PIN number to access the funds. Debit cards also require a PIN (Personal Identification Number) to access any funds while a credit card requires only a signature. Credit cards charge interest for the privilege of using them while debit cards do not. Credit cards are limited by the amount a financial company is willing to lend you, while debit cards are more limited by the available funds you have at a given moment in an account you own.

Fees

Debit cards don't have direct fees, but can cause overdraft charges on your account since they act like a check. Credit cards charge interest like a loan. Users of debit cards are charged fees at ATM machines which are drawn directly from the account; credit cards do not have this charge. Issuers of credit cards can charge a fee for the privilege of using the card; debit cards do not have this charge.

Legal

Credit cards have many consumer protection guidelines and regulations in place which debit cards cannot be held to. If a credit card is lost or stolen, the chance of identity theft is much higher than if a debit card is lost or stolen. Return policies and protections are almost non-existent for debit cards where they are common for credit card purchases.

Promotional

The one thing debit cards don't do is promote themselves. Unlike debit cards, credit cards try to get you to use them with gimmicks like cash back and rewards. Credit cards, like loans, need to be shopped for the best rates and offers; unlike debit cards which are basically all just the same type of access to your money. You don't get numerous offers asking you to sign up for a debit card like you do with credit cards.