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What Is the Difference Between Credit Card and a Debit Card?

What Is the Difference Between Credit Card and a Debit Card?
Have you ever been confused about the difference between a credit and debit card? It’s easy to see why. Debit cards and credit cards are accepted at many of the same places. They also both offer convenience and eliminate the need to carry cash. They even look similar.

The fundamental difference between a debit card and a credit card account is where the cards pull the money. A debit card takes it from your banking account and a credit card charges it to your line of credit.

What Is a Debit Card?

Debit cards offer the convenience of a credit card but work in a different way. Debit cards draw money directly from your checking account when you make the purchase. They do this by placing a hold on the amount of the purchase.

Then the merchant sends in the transaction to their bank and it is transferred to the merchant's account. It can take a few days for this to happen, and the hold may drop off before the transaction goes through.

You will have a PIN to use with your debit card at stores or ATMs. However, you can also use your debit card without a PIN at most merchants. You will just sign the receipt like you would with a credit card. Below are some other facts regarding debit cards.
  • A debit card is tied directly to your checking account.
  • It can be used where a credit card can be used.
  • Generally, you will use your PIN to complete the transactions.

What Is a Credit Card?

A credit card is a card that allows you to borrow money against a line of credit, otherwise known as the card’s credit limit. You use the card to make basic transactions, which are then reflected on your bill.

Worth noting: you are charged interest on your purchases, though there is no interest charged if you do not carry your balance over from month to month.

Credit cards have high interest rates, and your credit card balance and payment history can affect your credit score. Below are other facts about credit cards:
  • A credit card is a line of credit you can access with your card.
  • Generally, you must sign on these purchases (exceptions may be at the gas pump or for small amounts at a drive-through window).
  • You will pay interest on the purchases made if not paid off in 30 days.

Debit Cards vs. Credit Cards

It used to be commonly thought that you needed a credit card to complete certain transactions, such as rent a car or to purchase items online, or that it was safer and easier to travel with a credit card rather than carrying cash or using a checkbook.

Some also argue that a credit card offers additional insurance on purchases and makes it easier to request a refund or a return.

Debit cards offer the same convenience without requiring you to borrow the money to complete the transactions, though debit cards don’t always provide the same consumer protections of credit cards.

It can be difficult to determine when to use a credit card or a debit card. Be sure to do your research to determine the right option for you.

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