Have you ever been confused by the difference between a credit card and a debit card? It’s easy to see why.
Debit and credit cards are accepted in many of the same places, and both offer convenience and eliminate the need to carry cash, and even look similar.
The fundamental difference between a debit card and a credit card is where the cards draw money from. A debit card takes money from your bank account, while a credit card charges your line of credit.
What is a debit card?
Debit cards offer the same convenience as credit cards, but they work differently. Debit cards withdraw money directly from your checking account when you make a purchase, and they do so by placing a hold on the purchase amount.
After that, the merchant sends the transaction to his bank and it is transferred to the merchant’s account. This may take several days, and withdrawals may occur before the transaction goes through.
Note: It is important to maintain a balance in your checking account so that you do not accidentally overdraw your account.
You will have a personal identification number (PIN) to use with your debit card in stores or at ATMs. However, you can use your debit card at most merchants without a PIN, i.e. with a tap.
Below are some more facts about debit cards.
- You will not pay interest on the purchase.
- Spending on a debit card will not affect your credit history.
- By paying by debit, the money will be taken from your account immediately.
What is a credit card?
A credit card is a card that allows you to borrow money on a line of credit, otherwise known as a credit limit card.
Use the card to perform basic transactions reflected in your account; the bank pays the merchant, and later, when you receive the bill, you pay the bank.
You will be charged interest for the purchase. To avoid paying interest, don’t carry over your balance from month to month. Credit cards have high interest rates, and your credit card balance and payment history can affect your credit score.
Note: Paying on time and in full will help you avoid interest and late fees and help you maintain or even improve your credit score.
Below are other facts about credit cards:
- The bank decides on your credit limit based on your credit history.
- In general, you no longer need to co-sign for personal credit card purchases.
- You will owe interest on the purchase if it is not paid within 30 days.
Debit Cards Vs. credit cards
Debit cards make it difficult to overspend because you are only limited to the amount available in your checking account.
With a credit card, you risk spending more than you can afford. Just because your credit limit is HRK 5,000 does not mean that you can afford such spending in your monthly budget.
In addition, debit cards offer the same convenience as credit cards without requiring you to borrow money or pay interest or fees on purchases.
Choosing a debit is great for managing your money and helping you live within your means.
On the other hand, some credit cards offer additional insurance for purchases and can make it easier to apply for a refund. However, many companies are reducing or withdrawing these benefits.
Tip: Please read your credit card disclosure information carefully to understand the benefits.
Finally, credit cards can help you in an emergency, giving you a month to come up with cash before the bill is due.
This safety net could come in handy if you happen to pay something big before the check comes through.
But beware: depending on the emergency loan, you are setting up expensive interest if you cannot pay in full by the due date. A better solution is to have an emergency fund on hand.
Choosing the best card for your situation
When trying to determine whether you want to use a credit or debit card, you should be honest with yourself and your ability to manage a credit card.
If you have trouble spending, it’s better to use a debit card whenever possible to prevent yourself from falling into credit card debt.
Choosing the best card to use also depends on the purchase. Some car rental agencies and hotels make a debit card impossible or at least inconvenient.
For example, they may require utility bills, personal references, payment cards or other proof of ability to pay before accepting your booking.
You might find using a credit card less of a headache.
Using a credit card can also be a better option if you want to take advantage of credit card rewards programs. But this system only benefits you if you pay off the remaining balance in full every month.
If you’re trying to build a credit score, decide to use your credit card occasionally. Paying your bills on time will create a record of responsible, creditworthy behavior that is reported to the credit bureaus and reflected on your credit report.
Identity theft and fraud are risks you need to protect yourself from, regardless of whether you choose a debit or credit card. That’s why it’s important to know what protections are included in your card.
If your credit or debit card information has been compromised, contact your bank immediately.
Most banks have a 24-hour hotline you can call. The sooner you call, the better. You will not be responsible for fraudulent charges to your ATM or debit card after you report it missing or stolen.
If someone uses your debit card before you report it lost or stolen, your liability depends on how quickly you report it. Whether it’s a debit or credit card, you should immediately report the card as stolen by calling your bank.
After reporting the missing card, follow up with a written statement or email. Check your account very carefully for any charges you have not made and report them to your bank.
Monitor your credit report to make sure your identity isn’t stolen. If your credit card is compromised, you may even freeze your credit to protect against further fraud.