Business Banking

Credit card vs. debit card

In this post we explain the differences between a debit card and a credit card.

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While credit cards and debit cards are both used to pay for purchases, they differ in where they draw money for the purchases. Your credit card gives you access to a line of credit that allows you to pay for purchases and repay later, with the amount depending on your credit limit.

A debit card, on the other hand, draws funds from your bank account. Every time you pay for a purchase, the money is deducted from your account.

Nonetheless, both credit cards and debit cards allow you to pay for personal and business purchases without having to use cash or write a check. This makes them convenient and more secure compared to cash. Plus, they make it easier for you to track your expenditure.

But how do you choose between the two? In this credit card vs debit card comparison, we break down the pros and cons of each and how to choose one for your personal and business use.

The key takeaways

  • While credit cards give the cardholder a debt, debit cards don’t.
  • Your debit card is linked to a checking account. A credit card, on the other hand, is linked to a line of credit that you can draw from as needed.
  • A debit card allows you to spend only as much as you have. A credit card allows you to spend money that you don’t have.
  • While credit cards require you to pay interest, debit cards don’t. Oftentimes you won’t even need to pay an annual fee on a debit card.
  • A credit card can help you build credit and improve your credit report, but a debit card usually cannot.
  • Credit cards generally offer better protection against fraud compared to debit cards.
  • Between credit card vs debit card, the best pick for you depends on your spending habits.
  • Credit cards carry interest rates on unpaid balances while debit cards do not as they use the money your checking or savings account
  • Both credit cards and debit cards can be on the Visa or Mastercard networks generally

What is the difference between a credit card and a debit card?

The key difference between debit and credit cards boils down to where the money comes from and the type of card you use depends on your personal finances and circumstances. When you pay for a purchase using a debit card, the money is automatically debited from your checking account almost in real time. In other words, the amount you’ve spent is withdrawn from your debit account to pay for the purchase.

Credit cards are significantly different. When you apply for a credit card, the card issuer gives you a line of credit. Every time you pay for something using the credit card, that amount is charged to your line of credit. Therefore, whenever you make a purchase, you’re essentially borrowing money from the card issuer. The card company pays for purchases and then you have to pay the lender the balance plus interest charges. You do not have to pay the whole balance technically as you only need to make a minimum payment by each monthly due date, however the interest charges add up and it's usually not the best decision for your personal finance.

Since it’s a debt, a credit card doesn’t require that you pay the balance immediately as is the case with a debit card. It gives you more time to pay, which can be advantageous. At the end of a pre-agreed billing cycle, the card issuer will send you the balance for everything that you purchased within that cycle, plus interest and fees.

As the credit card holder, you’re responsible for repaying the debt together with its interests and fees. You can either:

  • Pay the minimum payment, which is usually determined by the card issuer. This means carrying a credit card balance to the next month. Interest accrues on any balance carried month to month,
  • Pay the full amount, which is the sum total of your spending within the billing cycle, or
  • Pay any amount between the minimum and full bill. Again, interest will accrue on the balance you carry forward.

Despite the difference between debit and credit cards, U.S. consumers use them in almost equal measures. 68% of Americans use debit cards each month, compared to 63% of those who use credit cards 1. But as a consumer, how do you know when to pick one over the other? We answer that and more in the following sections.

Credit card


A credit card is a payment card that lets you borrow funds for making purchases, although some also allow you to make balance transfers or get cash advances. Whatever the case, the money that you get for purchases or in cash comes from the card issuer as a line of credit. You then have to repay it all back, including any interest and fees charged on that line of credit.

Debit card


A debit card is a payment card that allows you to pay for purchases or withdraw cash directly from your checking account. It is linked to the account, thus all the money that you spend or withdraw is deducted from that account. Debit cards do not extend debts, which means you can only spend as much as you have in the checking account.

Pros and cons of credit cards

Credit cards offer multiple benefits, with the main one being the ability to make purchases on credit. However, without diligent spending, you can easily find yourself carrying a large, unmanageable credit card balance. Up to 55% of Americans carry credit card balances from month to month, and another 40% have had a running credit card debt since 2018. The bottom line is, credit cards may be beneficial but they require discipline. Here’s a look at the advantages and disadvantages of having a credit card.

Pros of credit cards

Credit cards allow credit purchases: the biggest advantage of a credit card is that it gives you short-term financing in the form of a line of credit. You can use that line of credit to pay for purchases when you don’t have cash on hand. Essentially, a credit card allows you to have goods and services now, then pay for them later.

Offer better protection against fraud: in case of an unauthorized charge on your credit card, the Fair Credit Billing Act limits your liability to just $50. You may even find a credit card company that has zero liability on fraud committed on your card.

They can help you build credit: a credit card is a type of loan. Every time you pay down your credit card balance, it can improve your credit score and credit history. You can build your credit even faster by purchasing things using your card and paying off the resultant debt before your billing time comes around. This will help you to easily qualify for other types of loans.

Rewards programs: rewards credit cards generally come with one of three types of rewards: cash backs, points or miles. A cashback reward program gives you back some of the money that you spend when you make purchases. Credit cards that have points and miles offer non-cash rewards like gas, hotel stays, lower flight ticket prices, shopping and dining experiences etc. Ultimately, you’ll end up paying less for the same purchases when you redeem rewards using your credit card. Some rewards credit cards also have other perks offered by the financial institution such as flight clubs, car rental upgrades, AAA, longer grace periods, etc.

Good for emergencies: you can always turn to a credit card when you don’t have cash, yet need to pay for an impromptu expense. Whether it’s a medical bill, house repair, or anything in-between, oftentimes you can use a credit card.

Cons of credit cards

Fees and interest: any credit card balance that you carry from month to month accrues interest. Additionally, your credit card company can impose cash advance fees, late payment fees, return payment fees and foreign transaction fees. Combined, these things can push your credit card balance higher every month.

You can sink into debt: credit cards make it very easy to access debt. Without diligent use, you can find yourself spending more than you can afford, and thus taking up more debt than you can repay. Although your credit card company will set a maximum limit that you can borrow, it is often more than most people’s budgets allow. That’s why 55% of U.S. citizens often fail to completely pay off their credit card balances each month.

A credit card can hurt your credit score: since it’s a loan, any late payments on your credit card may lower your credit score. The same is true if you fail to make the minimum monthly payment set by your credit card company.

Pros and cons of debit cards

When you use a debit card to withdraw cash or pay for purchases, the funds are deducted from your checking account. Because of this, you can’t spend more than you have in the account, which makes it your best bet when you want to avoid debt. That’s the biggest benefit of using a debit card.

The downside is that a debit card usually can’t help you build credit. In short, it will help you stay away from unnecessary debts, but it won’t help you improve your creditworthiness. Below is a deeper dive into the advantages and disadvantages of debit cards.

Pros of debit cards

They limit your debt: since a debit card only lets you use the money that’s available in your account, it can help you keep your spending in check. By doing so, you avoid taking on a debt as is the case with credit cards. That said, your checking account can still have an overdraft, so make sure to check it frequently so that you don’t get a debt that you’re unaware of.

No interest on purchases: debit cards work just like cash. You don’t accrue any debt, which means you won’t be charged any interest when you use your card. You’re not required to make any monthly payments either.

No annual fees: another cost-saving benefit of using a debit card is that oftentimes you won’t have to pay an annual fee. Even if you don’t use it at all, your bank won’t charge you to keep it activated. However, the associated checking account may carry an annual fee, so make sure to know the terms and conditions of your bank or card issuer.

Debit cards make it easier to access cash: you can withdraw cash from an ATM using your debit card. Some stores will also give you cash back when you make purchases, thus adding to the cash that you already have.

It’s easy to monitor debit card activity: depending on your card issuer, you may be able to set up alerts for activities on your debit card. This is an added layer of security to ensure that you’re always aware should someone try to use your card.

Cons of debit cards

They come with fees: your debit card issuer may not charge an annual fee, but they’re likely to charge other types of fees. These include ATM fees, overdraft fees and an additional charge for using a Personal Identification Number every time you make a transaction.

A debit card won’t help you build credit: using a debit card usually won’t improve your credit. That’s because it doesn’t offer a debt that you can repay to boost your credit score.

Debit cards have limited protection against fraudulent purchases: the biggest disadvantage of using a debit card is that you may be liable for any fraudulent activities against the card. According to the FTC, if you lose your debit card and report the loss within the first two days, you could be liable for up to $50 of the unauthorized charge. If you fail to report within the first two business days, the responsibility can increase to $500. Taking more than 60 days to notify your bank can make you fully responsible for the unauthorized charge with your card number.

You can only spend as much as you have in your account: debit cards don’t offer a line of credit. Thus, if you need more money than you have in your account (say for a big purchase or an emergency), then your debit card won’t be of any help.

Credit card vs. debit card: Which should I choose?

The difference between debit and credit cards makes them ideal for different situations and spending habits. If, for example, you’re worried that easy access to credit can make you sink in debt, then you’re better off using a debit card than a credit card. On the other hand, if you’re a disciplined spender who creates a budget and sticks to it, then a credit card can serve you well and help you develop good credit.

At the same time, a debit card is better for day-to-day purchases where you need to see the money deducted from your checking account in real time. For bigger purchases like renting a room or a car, you can turn to a credit card. It will allow you to save up some money and pay off the debt incurred at a later date.

Ultimately, you can have both a credit and debit card – you don’t have to choose just one. That way, you can utilize the unique advantages that each card brings to the table. The better security that comes with a credit card can come in handy when you’re making large purchases that are easily prone to fraud. Plus, a credit card can help during emergencies. The limited spending that you get with a debit card can be invaluable when you need to stick to your budget.

Credit card vs. debit card: frequently asked questions

Is a credit card safer than a debit card?

Credit cards are generally safer than debit cards because they come with zero fraud protection. However, a number of card issuers are now mimicking some of the protection and security features of credit cards on debit cards. So yes, debit cards can also be as safe as credit cards when it comes to securing your actual card information.

Can I use a credit card as a debit card?

No, you cannot use a credit card as a debit card. That’s because your debit card is tied to an existing checking account while your credit card is not. Thus, you can’t use the credit card for debit payments. That said, some credit cards do allow cash advances from ATMs, which makes them a little bit like debit cards. When you checkout at most retailers you have the option of running your debit card as a debit or credit card, the end result is the same but typically it's safer to not key in your PIN if not necessary. 

What is a debit in accounting?

In accounting, a debit is an entry that records an increase in an asset or expense as well as a decrease in a liability or revenue. Debit cards are called that way because they reduce the bank’s liability. In other words, the more money you have in your debit account, the bigger the bank’s liability. But every time you draw from that account, you reduce the bank’s liability – which is a debit from the bank’s perspective. This does however also benefit the consumer if they typically have to worry about overspending and late fees.

What is a credit in accounting?

In accounting, a credit is an entry that records a decrease in an asset or expense as well as an increase in a liability or revenue. Credit cards are called that way for the simple reason that they provide cardholders with credit and report to the credit bureaus.

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