DIFFERENCES BETWEEN A DEBIT CARD AND A CREDIT CARD

Debit and Credit cards…some people use both, some use one over the other for specific reasons. While these cards may look the same – and swipe just as easily – they function quite differently!

Both make completing transactions in-store or online extremely convenient, but we want to help break down the differences between the two, because believe it or not, many don’t know all of the ins and outs of these cards! 

PAYING NOW vs. PAYING LATER

Debit Cards – Pay Now

A debit card, simply put, is like paying for things with cash. Debit cards access your money from your checking account and when you pay for items, generally the money comes out as soon as you complete the transaction. (In some cases, rather than the money coming out immediately, the money will be placed ‘on hold’, meaning the transaction is showing on the account, and the money will come out within a few days.)

You can conduct transactions with your debit card, or take out cash withdrawals at an ATM. The amount you have available to spend depends on how much you have available in your checking account. When you make a purchase with your debit card you are withdrawing money that deducts directly from your available balance in your checking account that you do not have to pay back.

Credit Cards – Pay Later

Alternatively, a credit card is a card that accesses your financial institution's money as a loan, in the form of a line-of-credit, that you ultimately borrow and payback within a statement period. A credit card has a set credit limit amount that you’ve been approved to borrow from.

Generally, a credit card is used for making purchases or payments, but it can also be used for cash advances, where you can get cash for some of your available credit limit. When you use a credit card to make a purchase, you are borrowing that money and promising to pay it back either in full or gradually with payments by your statement's due date(s). If it’s not paid in full, you’re likely paying interest on that balance you borrowed and are paying back based on the financial institution’s terms.

UNDERSTANDING THE TERM ‘BALANCE’

It’s important to know the difference of the word ‘balance’ when it comes to credit and debit cards because they’re actually quite contradictory. When talking debit cards, your balance is your own money that you have available to spend from your checking account that you access with your debit card.

When talking about credit cards, balance is the amount of money that you have spent, or ‘charged’ to your card. You now OWE that ‘balance’ and are responsible to pay back according to the terms of your agreement.

PROS and CONS

Pros of Debit Cards

• Avoid Debt – When using a debit card and keeping your purchases within the balance available in your checking account, you can stick to your budget a little easier compared to a credit card, where your spending can easily get out of hand since you can always ‘pay it back later'.  
• Fraud Protection – Fraud protection for debit cards have come a long way in recent years. Card processors are offering better protections for debit cards, specifically. The key is to report fraud immediately so that your entire checking account isn’t drained. Generally, when fraudulent activity happens on a card, it will be reimbursed and returned to your account, but the funds usually are not returned instantaneously.
• No Fees! – At CSE specifically, our debit cards are associated with our FREE checking account with no limitation on the numbers of transactions you make, no monthly maintenance fee, and no fee for withdrawing cash when using your debit card at a CSE ATM, or one of our 30,000 fee-free ATMS in our shared ATM network. (But, if you’re using a debit card from another institution, watch for fees and costs associated with using their debit cards.)
• Rewards! – Yes Rewards! Although not common, at CSE this is one of our biggest PROs! Our debit cards give you the ability to earn rewards points AND if you also have a CSE rewards Visa credit card those points are combined!

Cons of Debit Cards

• Won’t Build Your Credit – Since a debit card is not a loan, or line-of-credit, you are not building your credit if that is a goal of yours. BUT, be careful, if you misuse your checking account specifically, for example by writing back checks or being the owner of an account that is closed while negative, it could adversely impact a credit report. 
• Fraud Can Be Intrusive – While fraud protection has come a long way, fraud on a debit card can still cause major disruption to your finances, since the card is tied directly to your account(s). If you don’t catch the fraud when it happens, it can drain an account quickly before fraud monitoring kicks in. While you’re very likely to get the money back, it may take a little bit of time before it is all recovered and available to you, which could put you in a financial pinch for the time being.
• No Rewards – At MOST other financial institutions it’s unlikely that you will have a debit card with rewards attached. BUT at CSE that’s one of our biggest PROs that our debit card is a rewards card AND if you also have a CSE rewards Visa credit card those points are combined!

Pros of Credit Cards

• Build Credit History – Since a credit card is seen as a loan, or line of credit, credit card usage and history is reported to the credit bureau which affects your credit report, and your credit score. For example, making sure you’re utilizing no more than 10% of your credit card limit, and making payments on time, can help boost your credit score.  It’s important to use a credit card wisely if your goal is to boost your credit score.
• Fraud Protection – In general, credit cards offer better consumer protection against fraud. With credit cards, the protection comes easier, because this is money borrowed rather than out of your account, so it won’t disrupt your finances too much while you wait for the issue to be resolved.
• Rewards – At CSE we have a Rewards Visa credit card where you can earn rewards with every purchase, with no crazy, hidden fees. It’s a free card with great point-earning potential.

Cons of Credit Cards

• Debt Accumulation - If you’re not careful with your spending and money management, credit card debt can quickly accumulate. Since this is money you borrow, versus money from your checking account, it’s been found to be easier to spend more and gain debt over time with credit cards. You’re only required to make the minimum payment while interest accrues on the balance owed. Many don’t understand how quickly this all can add up. Keeping up with monthly payments on multiple credit cards may become difficult if you have bad spending habits while only paying the minimum payment amounts.
• Impact of Credit Score – Credit cards can be powerful tools when building credit, but you can just as easily ruin your credit. If you’re misusing your card by maxing out or using an overabundance of your capacity – or available credit limit – or missing/making late payments on a credit card, this can negatively impact your score.
• Paying More – Credit cards are something called revolving loans. You borrow money, “take out a loan”, and pay it back, then the cycle starts all over again. However, if you do not pay that loan in full, you’ve agreed to the card-issuer terms stating that you will pay on the remaining balance, which is calculated each statement and added to your balance. So, you’re paying more on what you’ve purchased if you do not pay your balance in full. You also may pay more when it comes to fees. It’s important to look at the type of credit card you have and if you’re paying an annual fee, over limit fees, late fees, etc., in addition to the interest rate.

Credit and debit cards are both great, useful tools that, when used responsibly, add value to consumers. At CSE, we pride ourselves on having fair, competitive cards that don’t cost members money when used according to the terms set. If you have questions about credit and debit cards, we encourage you to ask questions or use our Banzai Financial Education Center to discover more information about how credit and debit cards work.

For a quick summary of this blog, you can also watch our CSE Couch Chat video below, as we talk about the differences between a debit card and a credit card with a CSE Cards Specialist!