Credit Card vs. Debit Card: How Are They Different?

What Is a Credit Card?

A credit card is a type of revolving credit that allows you to make purchases on a line of credit. Each month, you'll receive a statement from your card issuer detailing your purchases from the previous billing period, your total balance and the minimum payment required.

You'll then have at least 21 days to pay at least the minimum amount due. If you pay in full, you typically won't incur any interest on the statement balance. Any balance that is carried over will be subject to the card's annual percentage rate (APR).

Other notable credit card features include:

• Credit limit: Your card issuer will determine how much you can borrow based on your credit history, income, existing debt and other factors. Each transaction uses up a portion of your available credit, but making a payment can restore that spending power.
• Rewards: Many credit cards offer rewards in the form of welcome bonuses and cash back, points or miles for every dollar you spend. Depending on which card you choose, you may be able to redeem your rewards for cash back, travel, gift cards, online shopping and more.
• Other perks: Depending on which card you choose, you may enjoy other benefits, such as a 0% introductory APR promotion, statement credits on select purchases and a variety of travel perks.
• Security: Credit cards use a few different security measures to prevent fraud, including CVV codes and EMV chip technology. Some cards even allow you to create virtual card numbers when you shop online to keep your main card number out of the hands of criminals.
• Credit building: With responsible use, you can use a credit card to build and maintain a good credit score. However, racking up a large balance or missing payments could damage your credit.
• Fraud liability: Most credit card issuers offer zero liability fraud protection, which means that if someone uses your credit card without your permission, you won't be on the hook for any of their purchases. Even if there's no zero liability policy, the most you could legally be liable for is $50.
• Fees: Credit cards will typically charge a fee for cash advances, balance transfers and late or returned payments. Others may also charge a fee on international purchases and even an annual fee for the privilege of using the card.

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Pros and Cons of Credit Cards

There are both benefits and drawbacks to consider when using credit cards. Here's what to keep in mind.

What Is a Debit Card?

A debit card is a payment method that's linked to your checking account, money market account or a prepaid debit card account. When you make a purchase with the card, the issuing bank will immediately pull the funds from your linked account to complete the transaction.

As a result, you can typically only spend up to your account balance—though some banks may offer overdraft protection. Here are some other debit card features to understand:

• Card benefits: Some debit cards offer rewards on your everyday purchases, usually in the form of cash back. The underlying account may also offer other perks, such as ATM fee reimbursements, interest on your account balance and even welcome bonuses.
• Security: Debit cards may require a PIN on certain in-person transactions, and many also use CVV codes and EMV chip technology to minimize potential fraud.
• Fraud liability: Like credit card issuers, some banks offer zero liability fraud protection on debit cards. If you don't have this feature, however, you could be liable for up to the total amount of an unauthorized transaction, depending on when you report it.
• Fees: Both bank accounts and prepaid debit cards may charge a monthly service fee, though some financial institutions offer a waiver if you meet certain requirements. Other potential fees include out-of-network ATM fees, overdraft charges and international transaction fees.

Pros and Cons of Debit Cards

As with credit cards, it's important to consider both the advantages and disadvantages of debit cards before using one. Here's what to know.

Should You Use Credit or Debit?

The decision to use a credit or debit card is a personal one, so it's important to understand your situation and goals to determine which one is right for you.

When to Use a Credit Card

• You want to build or improve your credit score. Using a credit card responsibly—making on-time payments and keeping your balance low—can help you establish or strengthen your credit history.
• You want to earn rewards. Many credit cards offer cash back, points or miles for everyday purchases, which can add up to valuable savings or travel perks.
• You want stronger purchase protection. Credit cards typically come with zero liability fraud protection and may include benefits like extended warranties or purchase dispute assistance.
• You need flexibility in an emergency. A credit card can give you short-term access to funds when an unexpected expense arises, as long as you can repay it quickly to avoid interest.
• You want travel benefits. Some cards include travel insurance, rental car coverage, no foreign transaction fees and even some premium perks like airport lounge access, which can make them more useful than debit cards when you're on the go.

When to Use a Debit Card

• You struggle with overspending. Because purchases come directly from your bank account, a debit card can help you stay within budget and avoid credit card debt.
• You want to avoid interest and fees. Debit cards don't charge interest, and there's no risk of accumulating a balance that could lead to costly finance charges.
• You frequently use cash. Debit cards offer easy ATM access to your own funds, which is something credit cards often charge a cash advance fee for.
• You want to limit your exposure to debt. If you're rebuilding your finances or prefer to avoid borrowing, a debit card lets you spend only what you have available.
• You're teaching your kids about money. Linked debit cards or prepaid debit accounts can help young people learn budgeting skills without the risks that come with credit cards.

Frequently Asked Questions

The Bottom Line

Both credit and debit cards come with benefits and drawbacks, so it's important to understand your needs and goals to determine which one to use for most of your spending. If you want to use a mix of both, consider a debit card that can offer some credit-building features.

As you work on building your credit profile, Experian's free credit monitoring service can help you track your progress and get insights into how you can further improve your credit.