5 min read

Credit Card vs Debit Card: What's the difference

Jan 17, 2025
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Nowadays, debit and credit cards are used as the primary way to pay for purchases. They are designed to be easy and convenient to use on the go, so you don’t have to carry around large quantities of cash. You can also freeze the card if it is lost or stolen to limit your exposure to fraud. But credit and debit cards work in different ways. A debit card gives you a direct line to the money already in your checking account, while a credit card means buying something on credit. You will then need to pay off the balance on the card plus any interest that has accrued. Credit cards can enhance your credit score, while debit cards do not impact credit history. Additionally, credit cards frequently offer rewards and benefits, such as cash back or points. Learn how to find the right type of card for your situation and ensure you use these two cards responsibly.

man using his credit card to make a purchase on his laptop Article Image
Yellow notepad with pen svg icon Lesson Notes:
  • Credit cards and debit cards can both be used to purchase goods and services either online or in person.
  • Debit cards deduct the money you spend directly from your checking account.
  • Credit cards let you borrow money up to a limit, with repayment and interest required. 
  • Credit cards offer rewards, protections like Visa Zero Liability*, and additional benefits like rental coverage. 
  • Understanding credit vs. debit helps manage finances and make informed spending choices effectively. 

Credit card vs. debit card

You can get both types of cards at your local financial institution. They are easy to obtain and look virtually the same, but they come with different terms and conditions that can affect your finances.

Debit card

A debit card comes linked to your checking account. As soon as you open an account at your bank or credit union, you can use the debit card to pay for items using the money in your account. Every time you use the card, the money will come directly from your checking account. If you run out of money in your account, the debit card will be denied which prevents you from spending money you don’t have unless you have overdraft protection or courtesy pay setup.

Debit cards are free to use and maintain. You shouldn’t have to pay a fee to use the card. You can also use it at any participating automatic teller machine (ATM) to access cash. However, you may be charged an overdraft fee of $35 or more if you spend more money than you have. Some institutions extend a $50 or $100 overdraft grace period, but you may still get hit with a fee if you maintain a negative balance for more than one business day.

When you make a purchase with a debit card either online or in person, the bank temporarily puts a hold on the amount spent for at least 24 hours, and the money is immediately deducted from your account balance. The hold gives the bank time to process the transaction. It can be longer than 24 hours if the purchase is made on a weekend or holiday. The bank may also deny the transaction or lock the card if it suspects fraud.

You will need to enter your personal identification number (PIN), a four-digit code, to use the card or make a withdrawal. If the card comes with new chip technology, you might be able to just tap the card without providing any other information.

Credit card

A credit card is similar to a debit card in that it can be used to pay for goods and services online or in person. However, instead of having the money automatically deducted from your checking account, you are buying the item on credit. Credit cards are not automatically provided when you open a checking account. You must apply for the card with the lender. The financial institution will assess your creditworthiness based on your credit score and current debt-to-income ratio. If you get approved for the card, you will be granted a credit limit, which is the maximum amount you can charge to the card. The better your credit score, the higher your credit limit. However, utilizing more than 50% of your available credit may hurt your credit score. You will then need to repay the money you have spent plus interest by making regular monthly payments until the balance is paid off in full. You will have a billing cycle, usually 30 days depending on the card provider, to pay off the balance before the interest is applied, but the interest may also start accruing right away. Every time you make a payment, your credit limit goes back up. 

While many credit card companies offer 0% interest on balance transfers, there is usually a one-time fee for the transfer and after the promotional period, any remaining balance will be charged the regular purchase interest rate. Most credit cards offer the ability to use your credit limit for cash advances, but that’s typically at a higher interest rate, so it’s best to avoid cash advances and pay off your balance before interest accrues. The longer it takes you to pay off the balance, the more you will pay in interest.

When to use credit card vs. credit card debt

Different times call for different types of cards. You should decide which card to use based on the situation at hand.

When to use credit cards

Many credit cards offer insurance and other benefits that can protect your purchases, auto rental collusion damage, or extend product warranties. Having a credit card can give you peace of mind that you can still pay for things even if you run out of money. Remember, you won’t be able to use your debit card if your account is empty. If you fall on hard times, continue to use your credit wisely and consider using the money you have in your savings account prior to using a credit card.

You can also use credit cards to build up your credit history. Be sure to pay your monthly statement on time and utilize no more than 30% of your available credit to gradually increase your credit score. Some cards may also charge annual fees, so be sure to read through the terms and conditions.

Certain cards may also let you earn points that you can put towards travel and other giveaways, but you shouldn’t use your credit card frivolously just to earn points, especially if you are racking up interest.

When to use debit cards

You can use a debit card for most purchases as long as you have enough money in your account. Be sure to check your balance often to keep track of how much you are spending. Debit cards can also help you stick to your budget. Automatically transfer a certain portion of your income into your savings account and set limits for your spending to avoid running out of money at the end of the month.

You don’t have to worry about paying interest or fees when using a debit card unless you overdraft your account. It is ultimately cheaper to pay for things with a debit card vs. a credit card. You should only use your credit card if you plan to pay off the balance before the interest accrues or if you find yourself in an emergency. Use these cards responsibly to avoid paying more than you should. Ent offers a no strings attached checking account with no surprise fees, including zero ATM fees.

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>PLEASE NOTE: This article is intended to be used for informational purposes and should not be considered financial advice. Consult a financial advisor, accountant or other financial professional to learn more about what strategies are appropriate for your situation.

* Visa’s Zero Liability Policy does not apply to certain commercial card and anonymous prepaid card transactions or transactions not processed by Visa. Cardholders must use care in protecting their card and notify Ent immediately of any unauthorized use. To learn more, please visit http://usa.visa.com/support/consumer/security.html