What You Should Know About Debit Cards And Credit Cards

Although debit and credit cards look alike — both are a rectangular piece of plastic with a 16-digit number, expiration date, and personal identification number (PIN) — they’re anything but the same. 

Debit cards are connected to your bank account and let you make purchases using the money you already have. On the other hand, credit cards lend you a specific amount of money from the card company to withdraw cash or make purchases. 

Chances are, you have one or the other, but most likely both. Both types of cards are popular among consumers because they offer a high degree of convenience and security. However, it’s essential to understand the differences between these cards so you can use them responsibly.

These tips from Investopedia will help you know which card is best to use in certain situations.

Credit Cards

While banks mainly issue credit cards, any financial institution can distribute them. When you use a credit card, you use money lent to you by the bank on the premise that you will repay the funds with interest on the bank’s terms.

There are four types of credit cards:


  • Standard cards, which give you a single line of credit
  • Rewards cards, which provide cashback, miles, and other bonuses
  • Secured credit cards, which necessitate an upfront cash deposit that the bank keeps as collateral
  • Charge cards, which don’t have a set spending cap but prohibit unpaid balances from rolling over each month


Rewards credit cards allow you to enjoy generous perks and bonuses that debit card users don’t get. And if you stay on top of your monthly payments, you will see even more rewards when you use your credit card.

Moreover, credit card issuers report your activity to the three major credit bureaus, allowing you an opportunity to improve your credit score. Depending on the card, you could also receive extra consumer protections such as product warranties, car rental insurance, or travel insurance. 

Credit cards also have several protections in place that debit cards don’t provide. For example, if your credit card is lost or stolen and you report it immediately, you are only responsible for no more than $50 for fraudulent purchases. 

The Electronic Fund Transfer Act extends similar protections to debit cardholders, but you only have 48 hours to report the theft or loss. After that, you will be on the hook for $500. Additionally, there is no cap if you wait more than 60 days to report.

Under the Fair Credit Billing Act, credit card customers can contest fraudulent purchases. Additionally, if an item you bought was damaged or lost in the shipping process, you can dispute the transaction. 

However, if you bought the damaged or lost product with a debit card, you can’t get your money back unless the vendor consents. And in the case of theft, you won’t get any of your money back until the bank investigates the fraud. 

In contrast, credit card holders don’t have to worry about an investigation. Instead, the amount is taken out and returned if the dispute is resolved or settled on the vendor’s side. Although a few credit and debit card issuers extend liability protections for cardholders, people with credit cards have much more legal safeguards.

Debit Cards

Generally, a debit card connects to your bank account. However, this isn’t always the case. When you make a purchase, the amount is withdrawn from your account, not from funds lent from a financial institution. These are just as convenient as credit cards and have similar protections, particularly if you have a Visa or MasterCard.

There are three types of debit cards, two of which you can get without a bank account.


  • Standard debit cards, which require a checking or savings account
  • Electronic Benefits Transfer (EBT) cards, which eligible recipients of particular state or federal benefits programs can receive
  • Prepaid debit cards, which do not require a bank account. Instead, users can purchase a card with a pre-loaded sum and spend up to that amount.


Some people like debit cards more because they do not have extra fees aside from those associated with having a bank account or penalties from overdrafts. Conversely, credit card issuers levy interest, yearly fees, charge when you spend over the limit, make late payments, and more.

Debit cards’ most significant advantage is that there is no risk of going into debt since you can only spend the money in your account. Many businesses are aware that credit card holders often make bigger purchases. If you are an impulse buyer, a debit card can prevent you from spending more than you should. 

Plus, several debit cards, especially those provided by payment processors like Visa and MasterCard, are implementing new protections that were once exclusive to credit card holders.


  • Cussen, Mark P. “What’s the Difference Between Credit Cards and Debit Cards?” Investopedia, Investopedia, 28 Aug. 2020, www.investopedia.com/articles/personal-finance/050214/credit-vs-debit-cards-which-better.asp.
Ian Schindler