Credit cards vs. debit cards

By | April 20, 2020

Since credit cards and debit cards look alike, it’s easy to get them confused. To help you tell them apart, we’ll take a closer look at their similarities and differences.

Similarities
Credit cards and debit cards are both physical cards that are tied to a financial account. You can use each type of card to pay for goods or services. The ways you use them for transactions are also the same. For physical transactions, the most common option is to insert your card or swipe it in a card reader. For online transactions, you type in your card information.

Differences
Although both types of cards are tied to financial accounts, the accounts they are tied to are different. A credit card is tied to a revolving line of credit that a bank has issued you. A debit card is tied to your bank account.

This is an important distinction. With a credit card transaction, the card issuer pays, and you pay them back later. With a debit card transaction, you pay using funds from your bank account. If you have a fraudulent charge on your credit card, you can call and have that charge removed, and you won’t be out any money. If you’re a victim of debit card fraud, the bank will need to investigate before it can put the money back into your account.

Because of that difference, credit cards are a more secure payment method than debit cards.

Credit score
Credit cards affect your credit score, but debit cards do not. When you use your credit card and pay the bill on time, your credit will improve. Paying by debit card does not benefit your credit score in any way.

Secured credit cards
Secured credit cards are a type of credit card that require a security deposit. They’re typically chosen by consumers with bad or limited credit histories who can’t get approved for unsecured credit cards.

Although you need to deposit money to get a secured credit card, it’s still considered a credit card and not a debit card. You’re still borrowing money from the credit card company. The deposit is simply collateral. That also means a secured card can help you improve your credit just like any other credit card.

If you want to start building your credit score using a secured credit card, check out our roundup of the best secured credit cards.

Source: the ascent