Credit Cards vs. Debit Cards: Explanation & Differences

ByNathan Paulus
Edited byKatrina Raenell

Updated: March 20, 2024

ByNathan Paulus
Edited byKatrina Raenell

Updated: March 20, 2024

Advertising & Editorial Disclosure

What Are the Differences Between Credit Cards and Debit Cards?

At a glance, credit and debit cards may appear similar, but there are some specific differences between how they work and how you use them. With a credit card, the purchases you make are on borrowed funds from the issuing bank. When you use your debit card, you’re spending from your available checking account funds. While both types of cards grant ease of use and convenience, the origin of funds, credit utilization, security and your purchasing power vary.

Key Differences Between Credit and Debit Cards


Both credit and debit cards are tools that make the purchasing process easier, but understanding how they differ can help you determine which one best matches your spending habits.

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A credit card uses funds borrowed from a bank and is paid back over time.

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Debit cards use available checking account funds and purchases are immediately reflected in the account balance.

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The amount you can spend on a credit card is determined by your credit limit and is based on your creditworthiness.

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A debit card doesn’t accrue debt and it doesn’t impact your credit score.

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Credit cards can help your credit score and reward you points or incentives, but being financially-savvy is necessary.

Learn the Key Differences

The differences between a debit and credit card come down to the details. While they look the same and generally function the same, the manner in which transactions operate are different. Learn more about key distinctions lie in the transaction limits, interest, payment methods and more to understand how credit and debit cards differ.

Credit Card
Debit Card

Origin of funds

Bank or lending institution

Checking account

Transaction Limit

Credit limit determines amount

Available funds in the account


Established in your credit card agreement

No interest


Paid monthly or over time with a minimum requirement

Funds are taken from your account at time of purchase


Annual fees, late payment fees, balance transfer fees, international transaction fees and cash advance fees

ATM transaction fees, insufficient funds fee, overdraft fees and replacement card fees

What Is a Credit Card?

A credit card is a financial tool that allows cardholders to borrow funds from a financial institution to pay for goods or services. Lenders cap spending through a credit limit and borrowed funds are paid back with applicable interest and agreed-upon charges in full or over time. It can be used as a short-term loan or simply as a tool for convenience.

There are a number of credit card types, such as travel or rewards cards, cash back cards, balance transfer cards, secured cards and even branded versions of credit cards.

Understanding how credit cards work is essential as they are one of the most important tools for credit building. Your daily credit card activities are reported to the major credit bureaus — Experian, TransUnion and Equifax — and are compiled in your credit report, which is the main basis for your credit score.

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Responsible credit card use is essential to building a positive credit score. Prior to applying for a card, make sure you understand how to choose the best credit card for your spending habits.

What Is a Debit Card?

Debit cards offer the same convenience that credit cards do, but the funds used for each purchase comes directly from your checking account. A debit card also requires you to generate a personal identification number (PIN) to be able to use it at an Automated Teller Machine (ATMs) and some merchants, but the PIN is typically not required at most stores as you can simply sign a receipt.

A debit card makes it easier for financial planning and budgeting, as it does not involve any interest and ensures you only use available funds in your account. However, keep in mind that some debit cards have daily spending limits, which means you may not be able to make large purchases even if you have the funds. Additionally, a debit card does not help build or improve your credit score.

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A debit card can help control your spending habits, but using a credit card can help you continue to improve and strengthen your credit score. You can balance spending between the two by using your debit card for day-to-day purchases and using your credit card for online and big ticket purchases.

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Benefits and Drawbacks of Credit Cards

A credit card can be a great financial tool that builds your credit score and empowers your spending. If not used wisely, however, it can quickly lead to debt or even bankruptcy. Understanding the pros and cons of credit cards can help ensure you make the best use of your credit card and avoid any financial pitfalls.

Benefits of Using Credit Cards

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    Build credit

    The primary benefit of a credit card is that it allows you to increase and improve your credit score. Any credit card usage, including your payment history and your credit utilization, are reported to the three major credit bureaus — Experian, TransUnion and Equifax. With this information, they create a credit report, which is the basis of your credit score.

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    Earn rewards

    Many credit cards offer perks that reward your spending. This could include cash back, points or travel miles. Ultimately, these rewards can help your bottom line with cheaper travel expenses or lower monthly expenses with cash back discounts.

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    Emergency purchasing power

    Credit cards are often considered short-term loans and can come in handy when you experience an emergency. For example, if your car requires a costly, unforeseen repair and you don’t have enough cash in the bank to cover it, you can use your credit card to pay the expense.

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    Purchase high cost items

    Unlike debit cards, credit cards don’t have a cap on how much you can spend in a single transaction. As you stay within your limit, you can put expensive items on your credit card and pay them back in full or over time to help build your credit score.

Drawbacks of Using Credit Cards

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    Along with its ease of use, credit cards give you more purchasing power than you may actually have, which can make it easy to overspend. To avoid this, you can cap your spending and keep your credit utilization ratio in mind, which is a key factor in your credit report.

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    High interest

    Paying your credit card balance in full each month helps avoid any interest rates. However, if you have to make monthly payments you will be charged interest on the remaining balance. This can easily add up if you’re not careful and can make it even more difficult to pay back debt. It will help keep you on track if you pay your balance in full each month and monitor your spending.

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    Excessive fees

    With credit cards, there are a number of fees you should be aware of, such as annual fees, late fees, balance transfer fees, overdraft fees and more. Your first late fee can go up to $29 while subsequent late fees can go up to $40 — this can quickly add up if you’re not careful. It will help to pay your bill on time and read the fine print prior to engaging with any balance transfers or going over the limit.

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    Negative credit score impact

    While credit cards can help you build your credit score, they can also do the opposite. When you make late payments, maintain a high balance or go over the limit, you will start to negatively impact your account and decrease your credit score. This is because your credit score is determined by how responsible you are with the issuing bank’s borrowed money and by not upholding the terms of your credit agreement, you’re showing banks and lending institutions that you may not be a strong, trustworthy borrower.

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Benefits and Drawbacks of Debit Cards

Benefits of Using Debit Cards

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    No debt accumulation

    With a debit card, you use your available funds from your checking account, which means you aren’t borrowing money from a bank. You also won’t accumulate debt as you can only use what you have. This purchasing option helps impulsive shoppers and excessive spenders stick to a budget.

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    Limited fees

    Debit cards do not require an annual fee or interest rates on purchases like most credit cards. While some banks may charge maintenance fees, it is likely much lower than credit card fees.

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    Easier to acquire

    To get a credit card, you will be required to go through a long process that involves an extensive application, review of your credit report, an evaluation of your creditworthiness or ability to repay debt. A debit card is easy to apply for. You must have an active checking or savings account that a debit card can be connected to and you can request a card online, over the phone or at your local bank branch.

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    Stay within your budget

    The task of budgeting can be easier with a debit card since you’re limited to spending only the funds you have available in your account. Additionally, you can keep up-to-date with your expenses and spending by monitoring your daily debit card charges. This will help ensure you make responsible financial decisions and cut back when you need to tighten your spending. For example, if you want a $150 pair of shoes, but only have $50 in your account, you’ll have to wait to purchase when you have more income available.

Drawbacks of Using Debit Cards

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    Credit score impact

    A debit card does not make any positive impact on your credit score and using it incorrectly, such as by overspending, accruing overdraft charges or depleting your account month-over-month, can lead to a negative score or downgrade of your credit profile. For example, having a negative balance will appear as a debt on your credit report, which can decrease your score.

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    Overdraft fees

    While you are limited to using only your available funds with a debit card, you can still overspend and your account can go into the negative. When this happens, you will incur an overdraft fee. An overdraft fee, on average about $35 per overdraft purchase, will be deducted from your account and added to your negative balance. Some banks may also include a daily overage amount on top of the overdraft fee until the balance is paid in full. It’s important to keep a close eye on your spending and budget in order to prevent this costly instance from occurring.

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    High fraud risk

    Keep in mind that credit cards come with more comprehensive security and fraud protection compared to debit cards. This is because credit card limits are on loan from the issuing bank, and when fraud occurs, it’s in their best interest to recover the charges as soon as possible. If you lose your debit card, you must cancel it as soon as possible. This will help decrease the financial loss you may incur, as your bank must review fraudulent charges, delaying the return of your losses, and in some instances, you may not be able to recover what was charged to your account.

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    Spending and transaction caps

    Some banks limit how much you can spend on your debit card per day or per transaction. If you want to purchase something above the limit, you may have to withdraw money over the course of a few days. This requires strategic financial planning, isn’t convenient and can delay purchases you need right away.

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Credit Cards vs. Debit Cards: Which Should You Choose?

Choosing between a debit and a credit card depends on a number of things, such as your financial situation, spending discipline and credit score. It also depends on your current needs — do you want to start building credit or do you simply need a more convenient way to start shopping? Understanding what you’re looking for will help you determine which one is right for you.

When Should You Choose a Credit Card?

  1. Build credit. If you’re a college student or a young professional with no credit, getting a credit card is the right way to go. Building your credit can influence a lot of your future financial situations, such as your ability to get a loan or even where you rent. It helps that there are a number of credit cards for college students that keep annual fees and interest in mind.
  2. Shop safely. Credit cards have better protection against fraud. If you frequently shop online or generally want to ensure you’re protected when you make a purchase, credit cards are the better option.
  3. Gain rewards. Plenty of credit cards offer rewards and cash back opportunities that can make everyday spending more rewarding. If you frequently shop at the same stores or want to earn miles, getting a rewards or travel card can be advantageous for you over a debit card.
  4. Convenience. Purchasing goods or services is far easier with a credit card. This is because unlike debit cards, your funds won’t be held from your account. Additionally, credit cards can make it easier to purchase in foreign countries, as they are usually accepted and you no longer have to think about conversion rates.
When Should You Choose a Debit Card?

  1. Maintain a tight budget. A credit card’s seemingly limitless spending possibilities can make it difficult to maintain a budget. If you want to stick to a strict budget, a debit card is the best option as it ensures you to only spend what you have.
  2. Carry credit card debt. If you have a lot of credit card debt, a debit card is the best way to keep your finances in check. A debit card only utilizes your current checking account funds and knowing your available balance will help keep you on track. Additionally, by maintaining a tight budget, you can work toward paying off credit card debt.
  3. Convenience. If you like not carrying cash on you and you want to avoid costly credit card fees, a debit card is a good choice. Debit cards are also widely accepted at retailers and restaurants, making them easy to use virtually anywhere.
  4. Zero interest. A debit card is the ideal choice if you don’t want to pay interest on your purchases. Since you will be using your available funds immediately with a debit card, you won’t be borrowing from the bank and won’t incur interest.

Credit Cards vs. Debit Cards FAQs

Is a debit card or credit card the better option when it comes to fraud?
Can a debit card be used as a credit card?
Does a debit card build credit?

Expert Insights

Whether to get a debit or credit card depends on your needs and current financial situation. Understanding the difference between the two can help you determine what option works best for you, your financial situation and your spending habits. MoneyGeek reached out to a few industry experts for their insight and preferences between credit and debit cards.

  1. Is it better to have debit or credit? Why?
  2. How can consumers strike a balance between using a debit and credit card?
Dr. Marietta Poshi
Dr. Marietta PoshiProfessor at Warner University
Wendy Barlin
Wendy BarlinCertified Public Accountant (CPA) and Chief Strategist at About Profit
Ross Loehr
Ross LoehrCertified Financial Planner® at Raisonné & HammerPrice Corporation
Cliff Auerswald
Cliff AuerswaldPresident of All Reverse Mortgage, Inc.

Related Content

Determining what works best for you — a debit card or a credit card — requires thorough evaluation and understanding. Learn more about how credit and debit cards work, specific card options, how to use them and what option may be best for your financial circumstances.

  • Guide to Prepaid Debit Cards: Prepaid debit cards are a good alternative option to help you maintain a strict budget and control your spending habits. These can be used for a variety of everyday expenses, such as groceries or gas, and you can use them at an ATM.
  • How Credit Cards Work: How do credit cards remain secure? Do you know how to break down what your statement means? Knowing the ins and outs of how credit cards work can help you make smart financial decisions and determine if a credit card is right for you.
  • Guide to Credit and Credit Cards for Students: With more purchasing power comes greater responsibility. This is why it’s important for students interested in getting their first credit card to learn how to evaluate their finances, what to expect from the application process and tips for using and maintaining credit.
  • Credit Card Terms 101: Credit card applications and agreements are filled with terms and jargon. Prior to applying, it’s important to understand common terminology, such as annual percentage rate (APR), balances, overdraft fees and more.
  • A Guide to Your First Credit Card: If you're interested in getting your first credit card, research everything you can before you get started. It’s important to learn how to apply, what information you may need to prepare and what to do if your application is denied.

About Nathan Paulus

Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.

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