Credit Cards vs Debit Cards: What’s the Difference?

It’s often difficult to tell the difference between a credit card and a debit card at first glance. With the presence of 16-digit numbers, expiration dates, magnetic strips, and EMV chips for easy purchasing, they look almost identical. Both are often used to buy goods quickly and efficiently from physical stores to online platforms, seemingly reinventing the term “convenience” within the payment industry. However, there is one main difference between both of these cards. First off, credit cards are mainly known to be provided by facilities that allow customers to make payments on borrowed funds that would later be paid back in the form of credit. On the other hand, debit cards are almost always issued by a bank that allows access to other services like ATMs and although they can be used like a credit card, it’s linked directly to your bank account so there is no need to borrow any funds.

Now that we got the simple definition of each type of card out of the way and you’ve seen how similar they can be, they also vary significantly. This is because certain cards may be better based on circumstances, time periods, and even individuals. Choosing whether to use a credit or debit card is usually a decision that revolves around spending habits, lifestyle, and current financial state.

What is a Credit Card?

According to Investopedia, a credit card is “a thin rectangular piece of plastic or metal issued by a bank or financial services company that allows cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment.” But what does this actually mean? In simplest terms, a credit card is usually provided by a facility that monitors credit. This can include any institution like a bank or credit union as they specialize in offering these payment methods. It’s used similarly to a borrowing system where the facility puts a certain amount of funds into the card and allows its user to make payments on those borrowed funds. Later, the customer is expected to pay those same funds back, this time with some added interest.

Credit cards also come in a variety of options. Certain cards appeal to certain audiences based on lifestyles and interests. While one customer may be a student in college, another one may be an avid traveler. As a result, they would both be more inclined to choose a card that specializes in their livelihoods. The most common credit card types include:

Rewards Credit Cards
Cash Back Credit Cards
Travel Credit Cards
Business Credit Cards
Student Credit Cards
Secured Credit Cards
Co-Branded Credit Cards
Store Credit Cards
Low-Interest Credit Cards
Balance Transfer Credit Cards

What’s the difference between the different types of Credit Cards?

Each type of credit card has a unique trait in order to provide various options to consumers so they can select the card that best fits their needs and financial situation. As a result, to satisfy the preferences of a specific group of people, financial institutions offer a variety of credit cards that can offer savings, rewards, benefits, perks, and more. Some credit cards restrict the buyer while others account for and encourage diverse spending habits. Some credit cards may relate to interests while others relate to financial status and current state.

Let’s begin with Rewards Credit Cards, one of the most popular types of Credit Cards. Rewards Credit Cards are considered an overarching type of credit card that are significant in that they offer rewards programs as a result of purchasing certain items in the form of points, or miles. By participating in a program such as this one, the consumer is able to be rewarded based on aligning their own spending habits in a way that seems most valuable to them. This is similar to a travel credit card which offers benefits and rewards specifically tailored to avid travelers. This allows those who are always on the move to have discounts on hotel stays, plane tickets, and even special access to lounges and other perks. Another card type that is usually associated with rewards programs for owning the card is Co-Branded Credit Cards and Store Credit Cards. Co-Branded Credit Cards are often issued by a financial institution in partnership with a retailer, or separate company. These cards are usually a good choice for those who are frequent customers of a specific brand and therefore would be able to take advantage of the rewards and benefits that are offered. Almost likewise, a Store Credit Card offers advantages to loyal customers who tend to shop with them often. However, the main difference between Co-Branded Credit Cards and Store Credit Cards is that Store Credit Cards are restricted to only buying at that specific retailer or its affiliates. This heavily limits the spending that the consumer does but provides large benefits for those who regularly shop at such businesses. Finally, low-interest credit cards are generally used to save on the cost of debt that one may receive in return. This also allows the user to pay their balance faster. This is different from a balance transfer credit card in that a balance transfer card is usually used to transfer the balance, as the name suggests, from an existing credit card balance to another credit card from a different provider. Now, all this information might seem overwhelming initially. However, it is crucial to select the right credit card when it comes to your unique lifestyle and hobbies.

What is a Debit Card?

A debit card, in definitive terms, is “a payment card that deducts money directly from a consumer’s checking account when it is used.” However, in simplest terms, it is a payment card that allows its user to pay directly from their own funds in an account. Such cards are also called “check cards” and “bank cards.” These cards are directly linked to checking accounts that one may hold in a bank or credit union and any purchase made comes out of said accounts directly. Therefore, the most amount of money one may use is limited to the funds in that designated account. However, most debit cards have a daily purchase limit in which they can only use a certain amount of funds every 24 hours.

Debit cards are usually more cost-efficient than credit cards. This means that they don’t generally cost anything extra like the annual membership fees or cash-advance charges that are tied in with credit card contracts. There are some fees though, usually in the form of using ATMs from a dedicated bank or credit union. And if you spend more money than you may have in your account, you may incur insufficient funds charges. Furthermore, if you were to register for overdraft protection, you would need to pay overdraft fees to ensure the ongoing premium. Lastly, you will need to pay extra for a replacement card and to make purchases in alternate countries, although this is similar to credit cards.