What is the Difference Between Credit Cards and Debit Cards

Credit cards and debit cards are payment cards, but they function differently. Here we will discuss what is the difference between credit cards and debit cards.

A credit card loan allows the cardholder to borrow money from the issuer up to a specific credit limit. The cardholder can make purchases or withdraw cash using the credit card and then pay back the borrowed amount, with interest, at a later date. The interest rate on a credit card is usually higher than that of a loan from a bank. It is because credit cards are considered to be a higher risk for the lender. Credit cards also usually have an annual fee, an additional cost for the cardholder.

Differences Between Credit Card and Debit Card

A debit card, on the other hand, is linked to the cardholder’s checking or savings account. When a purchase is made with a debit card, the funds are immediately deducted from the linked account. It means that the cardholder can only spend money they already have. Debit cards do not have an annual fee, and the interest rate is zero.

Credit cards offer more benefits than debit cards. For instance, credit cards offer cash back, rewards, and points for every purchase made. Credit cards also offer purchase protection, which means the cardholder can get a refund if a product is defective or not received. Credit cards also have fraud protection, which means that if a card is lost or stolen, the cardholder will not be held liable for any unauthorized charges.

On the other hand, debit cards do not offer any rewards or cash back. They also do not offer purchase protection or fraud protection. Debit cards also have daily limits on the amount of money that can be withdrawn from an ATM, whereas credit cards do not have such restrictions.

Another key difference between credit cards and debit cards is the impact on credit scores. When a credit card is used responsibly, it can help improve a person’s credit score. Making payments on time and keeping the balance low will help boost the credit score. On the other hand, debit cards do not affect credit scores as they are not considered a form of credit.

In addition, when it comes to international transactions, credit cards are more widely accepted than debit cards. It is because credit card companies have agreements with merchants and banks in other countries, making it easier for cardholders to make purchases while traveling. On the other hand, debit cards may not be accepted at some international merchants or may have additional fees for foreign transactions.

Summary

In summary, credit and debit cards are payment options, but they function differently. Credit cards allow the cardholder to borrow money and pay it back later with interest, while debit cards allow them to spend money they already have in their account.

Credit cards offer more benefits than debit cards, such as rewards, purchase protection, and fraud protection, but they also come with an annual fee and a higher interest rate. Debit cards do not have an annual fee, and the interest rate is zero. However, they do not offer rewards or purchase protection.

Using credit cards responsibly can help improve credit scores, but debit cards do not affect credit scores. Credit cards are more widely accepted for international transactions than debit cards.