The main difference between credit cards and debit cards is that a credit card allows you to borrow money up to a specific limit in order to purchase items or withdraw cash. A debit card will enable you to spend money by drawing on funds you have already deposited in the bank.
Credit cards and debit cards are two different forms of payment cards. Whether you choose a credit card or a debit card is ultimately a decision you should make based on your individual needs and preferences. Some important differences between the two types of cards that you should be aware of.
For example, a credit card allows you to spend more than you have in your account, while a debit card can only be used to withdraw money from the bank. With Credit Cards, banks lend money to use that can then pay back interest monthly. In comparison to a bank debit card, it allows you to spend the cash you have.
A credit card is a card issued by an institution of finance like a bank and enables the cardholder to borrow funds from that department. There are different types of credit cards provided by banks:
Types Of Credit Cards:
- Standard Card
- Premium Cards
- Reward Cards
- Balance Transfer Cards
- Secured Credit Cards
- Charge Cards
1. Standard Cards:
It enables the cardholder to make purchases, balance transfers, or cash advances
2. Premium Cards:
It provides services like an airport lounge and special event accesses etc but with a more annual fee.
3. Reward Card:
It provides facilities like cashbacks, travel points, or other services on the basis of how money is spent
4. Balance Transfer Cards:
It offers low introductory interest rates and fee charges on balance transfers from another credit card
5. Secured Credit Cards:
These cards deposit initial cash held by the issuer as collateral.
6. Charge Card:
These cards offer no spending limits but they don’t allow to carry balances that are unpaid from months to months.
Credit cards typically have higher interest rates than debit cards, so it is important to compare the costs and benefits of each before choosing a payment method. For instance, a credit card may offer a 0% introductory APR for a set amount of time, while a debit card may have no APR at all.
Benefits Of Credit Cards:
There are a lot of benefits provided by credit cards which include rewards when we use them, store discounts, or various travel benefits. It benefits us by providing a financial backup etc.
1. Build Credit History
All the credit card use is given on the credit report. It includes history like credit utilization ratios, on-time payments, and as well as delinquencies and late payments. This credit history is used to calculate credit scores.
2. Fraud Protection
Credit card provides greater fraud protection than debit cards. The customer’s reports like the loss or theft in a timely manner and the liability for the purchases that are made after the card is disappeared is $50.
3. Other Advantages
- The credit card provides a sort of wavier for collisions.
- Some credit card providers offer zero liability protection.
- The credit card users are provided with the Fair credit billing act that allows them to dispute unauthorized purchases.
Disadvantages Of Credit Cards
The main disadvantages of credit card that annoy the users is that involves debt, credit score impacts, and costs.
1. Credit Score Impacts
If you keep your balance on your credit card low or if you are paying bills on time can help your FICO scores but if you misuse it in a way if you pay bills late, or close down older accounts it could hurt your credit history.
2. Interest And Fees
If you take a loan through a credit card it is for a shorter term and you have to pay it back with interest.
3. Spending Can Lead To Debt
If you are making purchases with a credit card, it is not done with your money but by the bank, which deducts it from your account with extra charges. If you have a high balance on multiple cards it is difficult to keep monthly payments.
A debit card deducts money directly from your checking account when you make a purchase and it do not pay interest on it. It offers more consumer protection and convenience in a way that your credit history is not affected by spending.
Types of Debit Cards
- Standard debit cards
- EBT cards
- Prepaid Debit cards
1. Standard Debit Cards
It withdraws from your bank accounts.
2. EBT Cards
EBT stands for electronic benefits transfers that are issued by federal agencies to allow users to use their benefits to make purchases.
3. Prepaid Debit Cards
It gives people authorization to make electronic purchases till the amount is preloaded on into the card.
Benefits Of Debit Card
There are a lot of benefits of debit cards that include that it avoids debt, deducting no annual fee and providing protection against frauds.
1. Avoid Increasing Debt
It decreases the possibility of getting into debt. It avoids spending all the money in your checking account. In simple terms, it won’t take interest in purchases.
2. Access To Cash
Debit Cards give you access to your cash by withdrawing cash from ATM machines and giving you Cash with a receipt.
3. No Annual Fee
A credit card charges an annual fee but a debit card does not and it also donot charge for withdrawing cash from ATM machines.
Disadvantages Of Debit Cards
The debit card is having same disadvantages as credit cards, and no limit for spending means that you can spend more than you have in your account and which results in overdraft fees
1. No Rewards
You can not earn rewards, miles or cash back on purchases made with debit cards unless you have a reward checking account.
2. Won’t Build Credit
Building good credit means that you show that you are more capable of returning what you borrow but unfortunately it has not any option for building credit. It is the main drawback.