The Real Difference Between Debit and Credit Transactions

In the world today, debit cards and credit cards run the payment systems. There are more than 600 million Visa debit cards in use, and more than 200 million MasterCard debit cards are being used in the United States today. One of the most significant differences between the two cards is that debit cards can only be used to take money from a user’s checking account.

What are Credit Cards?

Over 1 billion credit cards are being used in the United States. These cards do not take money from a user’s checking account but instead are issued based on a person’s credit history. A credit card user does not have to have the money they are charging on these cards but has proven they will pay back the amount to a credit card company.
A credit card company will look over a customer’s credit scores and history to determine how much they will allow each one to charge on a card. This amount is known as a ‘line of credit’ and the cardholder cannot make purchases that would exceed this amount. The limit on your card will be set according to your payment history on other lines of credit you’ve had in the past, and whether or not there are any derogatory comments listed in your credit history.


What are Debit Cards?

Most adults will use debit cards as it is easier for them to keep track of their expenses. These cards allow you to spend the money in your checking or savings accounts without having to write checks for purchases or pay a bill. When you use a debit card to make a purchase, you can request the merchant to give you money back which is not something you can do when using a credit card.

The debit card will not allow you to overspend on purchases as their limits are based on your checking or savings account balance. If you do not have enough money in the bank to cover a purchase, the transaction will be denied and you will not be allowed to purchase an item. Some transactions go through even if you do not have a balance to cover the purchase, and in these situations, your bank will charge you an overdraft fee.


What is Different Between the Credit Card and Debit Card


What is Different Between the Credit Card and Debit Card

You will find a few advantages to using a credit card rather than a debit card. One significant difference that makes a credit card beneficial is that you build a credit history when using credit cards. Credit card companies will also increase your spending limits after you’ve proven you can make timely monthly payments to them.

Another significant difference that makes credit cards less of a benefit is that you will be charged a monthly interest fee for any balance you leave unpaid at the end of the billing cycle. This interest fee can add up quickly and have you spending much more for items than you would have with a debit card.


Pros and Cons of Using a Credit Card

Credit cards allow you to build your credit history as long as you make the regular payments required by the credit card company. There are fees attached to these cards, including the monthly interest fee and others if you do not make the monthly minimum payment. Using a credit card is safer than a debit card since if these cards are stolen, your account can be frozen before losing any actual money.

When a credit card is stolen, the credit card company that issued the card to you will be responsible for recouping any money lost through the stolen card. Money lost on a stolen debit card is gone until you resolve the issue through the issuing financial institution.




Pros and Cons of Using a Debit Card

When using a debit card, you have to be aware of your current balance available. You also want to ensure you have not been double charged for a purchase. If you make a purchase that exceeds your balance, the transaction will either not be allowed, or you will be charged an overdraft fee for spending more than the amount you have in your bank account. Debit card purchases will not have interest fees attached to them which can grow from month to month on unpaid balances like the credit card purchase can have.


The Bottom Line on Which Card to Use

Determining which card is better to use, the credit card or the debit card depends on your spending and paying habits. The debit card has a potential for overdraft fees if you overspend the balance in your bank account, however, the credit card generates interest fees if you cannot pay its balance at the end of each billing cycle.

Depending on your available money to make a purchase, the credit card will allow you to buy now and pay later, while the debit card is a buy now, pay now purchase. Credit cards work great for you if are looking to build credit or are in a money pinch. Debit cards are the answer if you only want to purchase what you already have the money to pay for.