What’s the Difference Between Debit and Credit Cards?

Stack of 12 credit cards“Will that be credit or debit?” You’ve heard it asked a hundred times, but have you ever stopped to consider the difference between debit and credit cards? They look the same.

They’re both conveniently designed so you don’t have to carry cash in your wallet. Most merchants accept both credit and debit. When you think about it, they’re very much alike, but when you understand how they both work, you’ll realize a world of difference.

Debit cards pull funds directly from your bank account, while credit cards pull funds from a line of credit for which a credit card company will later bill you. 

What Is a Debit Card?

A debit card is something you can use to pay merchants for services, products, or just about anything. As was previously mentioned, the funds are pulled directly from your bank account, so you can only purchase things you have the money for.

The process works when you swipe your debit card to make a purchase. Your bank will put a hold on the amount of money your purchase was for.

This ensures the funds don’t get tied up in something else, causing confusion and overspending. Typically within one to three days, the merchant will send the information to their bank. After it is received, the money is transferred from your account to the merchant’s account.

To make the transaction as secure as possible, you will most often have to use a PIN at the time of your purchase. The bank typically assigns your card a PIN, but you can generally change it to something else if you would rather choose it yourself. When you make a purchase, the card reader will ask for your PIN. You will type it into the keypad, and that lets the machine know you have permission to use the card. You should not share your PIN with anyone.

What Is a Credit Card? 

A credit card is something you use to make purchases, and funds are borrowed from a financial institution. You are given a maximum line of credit which is also known as your credit limit.

Every time the card is swiped, that amount of money is added to the balance you owe. Each month the company sends you a bill which gives details about each purchase you made.

All of the purchases are totaled to reflect the amount you owe them by a certain date. You have the option of paying either the minimum amount due, an amount greater than the amount due, or the entire balance owed. 

Keep in mind that interest generally starts accruing one month after purchases, but there are some rare instances in which it starts at the time of purchase. Check with your credit card issuer to understand your terms so you don’t end up paying more than you expect. By keeping your balance settled monthly, you can avoid having to pay any interest at all.

Credit Cards vs. Debit Cards

Although credit and debit cards are two different types of payment options, they both come with benefits you may want to understand before using one or the other. Some advantages of using a debit card include:

  • Typically, banks do not make an issue of your previous credit score. Because a debit card pulls from funds you have in your account at the time of purchase, the bank may not make an issue of poor credit history. This makes it easier to obtain a card.
  • You won’t accumulate debt. Again, the fact that funds come directly from your bank account is a huge benefit. Your debit card won’t work if you don’t have sufficient funds in your account. Of course, if your account has overdraft protection, there are fees and charges associated with that, so be sure you know your account details.
  • It’s an inexpensive option all around. Both you and the merchants you purchase from will find debit cards to be an inexpensive option. Fees for merchants to swipe a debit card are typically pretty low. In most cases, you won’t have any fees associated with the card on your end.

Some benefits of using a credit card include:

  • You can build credit and improve your credit score. As long as you make your credit card payment each month, you have the potential to build a good credit score. This will help you in the long run when you want to purchase a car or a home.
  • You have exceptional fraud protection services. If your card is lost or stolen, you can spend the time you need to dispute charges because you are given a grace period. Many credit cards come with warranties as well, and if a thief decides to rack up the charges, you are usually only out $50 or less.
  • There are often rewards associated with credit cards. You may have heard of travel rewards or cash back advantages that come with certain credit cards. As long as you keep your bill paid each month, these reward systems can really pay off.

As you can see, there is a difference between debit and credit cards, but that doesn’t make one better than the other overall. They are each beneficial in their own way, and the idea is to know when to use a credit card or when to use a debit card for the maximum advantages.

When to Choose Which Card

Now that you understand what a debit and credit card are, and you know some of the basic benefits of each, you need to know when to choose which card. The main thing to keep in mind is your goal in making purchases. The following are some questions to consider.

  • Are you trying to avoid debt?
  • Do you want to steer clear of monthly payments?
  • Are there travel rewards or cash back programs you’re trying to take advantage of?
  • What is your credit history like?
  • Do you plan to make a home or automobile purchase in the future?
  • Is managing your spending at the top of your priority list?

Considering these and more will help you match the right card with the outcome you want. For example, if you are trying to avoid debt, it might be more worth your while to use a debit card without overdraft protection. Not interested in keeping up on monthly payments? A debit card is your best bet there, as well. If travel rewards or cash back programs are something you’re interested in, it’s better to use a credit card.

When it comes to credit history, your credit score might determine which card you can use. If you have poor credit, you may not be approved for a credit card and will have to use a debit card by default. If you have no credit history, using a credit card would be good to help you build a profile. This will also help you when you want to buy a car or home in the future.

Money management is one of the main reasons to use a debit card. Although the bank keeps track of every transaction, it’s important to keep your own log of spending so you don’t end up with insufficient funds in the checkout line.

Learning More 

For more information about the difference between debit and credit cards, or to apply for a card of your own, contact Blackhawk Bank today. We look forward to assisting you with your financial goals.


Mathew Reynolds
SVP Retail Banking

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