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Difference between Credit Card and Debit Card

Last Updated : 13 Mar, 2024
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What is Credit Card?

A financial services institution or bank issues a credit card, which is a thin, rectangular piece of plastic or metal that allows cardholders to obtain credit to pay for goods and services from businesses that accept cards as payment. Credit cards require cardholders to repay the borrowed funds, along with any applicable interest and any additional agreed-upon fees, in full by the due date or gradually throughout the statement period. The credit card issuer may additionally provide cardholders with a distinct cash line of credit (LOC), which functions as an alternative to the standard credit line. This LOC allows cardholders to obtain cash advances, which are accessible via bank personnel, ATMs, or credit card convenience checks.

What is Debit Card?

A debit card is a type of payment card that lets its owner make purchases online by taking money straight from a bank account that is linked to the card. It’s often used at the register, to buy things online, and to get cash from an ATM. A debit card lets the user use their own money, while a credit card lets you borrow money from a line of credit.

Geeky Takeaways:

  • Debit cards grant immediate access to personal funds, whereas credit cards permit the borrowing of funds subject to a predetermined limit.
  • Credit card usage has an effect on creditworthiness and can either help or hinder the development of credit ratings.
  • Credit card balances incur interest charges if not repaid in full by the designated due date, in contrast to debit cards that utilize the personal funds of the cardholder.
  • Debit cards generally provide fewer incentives compared to credit cards, which frequently feature rewards and benefits.
  • By restricting expenditure to the remaining funds in the connected bank account, debit cards encourage budgetary discipline.
  • Credit cards afford users the ability to effectively manage their expenditures, whereas debit cards offer a direct and simple method of obtaining personal funds.

Pros of Using Credit Cards

1. Convenience: Credit cards offer a method of payment that is both convenient and universally acknowledged. They are capable of being utilized for both in-person and online transactions, as well as for automated bill payments.

2. Protection: In addition to PINs, technology for chips, and the capability to dispute unauthorized transactions, credit cards include additional security measures. Users may report instances of loss or larceny, and the card will be promptly deactivated.

3. Credit Histories: Practical credit card use, making punctual payments, contributes to the establishment of a favorable credit record for individuals. Credit scores that are favorable in nature are essential for securing loans, mortgages, and advantageous interest rates.

4. Reward and Benefit Provisions: A multitude of credit cards provide supplementary benefits and advantages, including cashback incentives, rewards programs, travel insurance, purchase protection, and extended warranties. Credit card users can accrue these rewards by conducting recurrent purchases.

5. Contingency Funds: Credit cards have the potential to function as a form of financial security in situations of urgency that require immediate funds. A readily accessible line of credit is made available to them for unforeseen expenditures.

6. Interest-free Period: Credit cards frequently include an interest-free grace period, which grants users the ability to complete transactions without incurring interest charges, provided that the entire balance is repaid in full by the designated due date.

7. Record Keeping: Credit card statements furnish users with an elaborate log of transactions, facilitating the monitoring of their expenditures. This can be beneficial for financial planning, expense monitoring, and budgeting.

8. International Acceptance: Credit cards are a practical method of payment for international travel and online transactions from foreign vendors due to their global acceptance.

9. Fraud Protection: Credit cards generally provide comprehensive protection against fraudulent activities. When unauthorized transactions occur, users are frequently held accountable for a nominal fraction of the unauthorized fees.

10. Discounts and Cashback: Certain credit cards offer cashback incentives or discounts that are specific to particular spending categories, including fuel, consumables, and dining. Cardholders may realize tangible cost savings as a consequence.

Learn more about Top 10 Best Credit Cards in India 2024

Pros of Using Debit Cards

1. Access to Personal Funds: Debit cards grant cardholders direct access to their personal funds, enabling them to make purchases exclusively from the balance in their linked bank account. This may facilitate prudent financial expenditure and effective budgetary control.

2. Absence of Interest Fees: In contrast to credit cards, which require the borrower to make installment payments and accrue interest, debit card transactions utilize the personal funds of the cardholder. Thus, the utilization of debit cards does not incur any interest charges.

3. Convenience: Debit cards enjoy broad acceptance across a multitude of transactions, encompassing online purchasing, point-of-sale purchases, and withdrawals from ATMs. They provide a fast and convenient alternative to carrying cash when making payments.

4. Budget Control: Debit cards enable users to restrict their expenditures to what’s left in the associated bank account, which can assist individuals in sticking to their budget. This can be especially advantageous for individuals striving to effectively oversee their financial matters.

5. ATM Accessibility: Cardholders of debit cards have the ability to withdraw cash, verify account balances, and conduct various other banking transactions at ATMs. This adaptability enhances the practicality of debit card usage.

6. Absence of Debt Accumulation Risk: Debit cards offer the advantage of accessing the cardholder’s personal funds, thereby eliminating the potential for debt accumulation. Individuals who wish to avoid the numerous hazards associated with debt from credit cards may find this to be advantageous.

7. Security Measures: A Personal Identification Number (PIN) is commonly used to encrypt debit cards, thereby providing an additional level of security. The cardholder may notify the bank of any loss or larceny involving the card, and the card can be promptly deactivated to thwart unauthorized transactions.

8. Universal Accessibility for Consumers: In general, a wider spectrum of consumers can obtain debit cards, including those who have a restricted or nonexistent credit history. They provide a useful financial instrument for those who may not meet the eligibility criteria for credit cards.

Cons of Using Credit Cards

Credit cards have some good points, but they can also be bad in some situations:

1. Charges for Interest: One of the main cons is that you might have to pay a lot of interest. Users who carry a sum from month to month may have to pay a lot of interest on the amount they still owe.

2. The Buildup of Debt: Credit cards can make it easy to spend more than you have, which can lead to debt. People can get stuck in a circle of debt if they don’t carefully plan their spending and follow their budget.

3. Fees: Credit cards often have a number of fees attached to them, such as yearly fees, fees for late payments, fees for cash advances, and fees for using the card abroad. These fees can add up and change how much it costs to use the card generally.

4. Effects on Credit Score: Not paying bills on time, having a lot of credit card debt compared to your credit limit (high credit utilization), and other bad habits can hurt your credit score.

5. The Temptation to Spend: Credit cards can make it easy to buy things on the spur of the moment or that aren’t necessary, which can lead to splurging and financial insecurity.

6. Concerns About Safety: Credit cards protect you from scams, but they can still have security holes. Unauthorized use of identities and fraudulent use of credit cards can put users at risk of losing money and causing them trouble.

7. Make People Buy Less: Credit cards can make people buy things without thinking, especially when they’re shopping online. This could cause you to buy things or use services that you didn’t plan to.

Cons of Using Debit Cards

1. Weaker Protection Against Frauds: One potential drawback of debit cards is their comparatively weaker protection against fraud in contrast to credit cards. Although regulations exist to restrict liability for unauthorized transactions, the process of recovery can prove to be more arduous, and promptly reporting fraudulent activities is of the utmost importance.

2. Fee for Overdrafts: Overdraft fees may apply if the cardholder’s expenditures exceed the readily available balance in the linked bank account. Especially if numerous transactions are executed with insufficient funds, these charges can rapidly accumulate and become a hardship.

3. Absence of Credit-building Advantages: The use of a debit card has no bearing on the establishment or improvement of credit history. In contrast to credit cards, which, when utilized responsibly, can favorably affect credit scores, debit cards do not exert a direct impact on credit reports.

4. Unsuitable for Specific Transactions: When merchants place a hold on funds for certain transactions (e.g., car rentals or hotel reservations), debit cards might not be the optimal choice. This may temporarily lock up the available balance of the cardholder.

5. Limited Resolution of Disputes: The use of debit cards may present greater difficulties in settling disputes with merchants regarding products or services, in comparison to credit cards. Generally, credit cards provide enhanced protection and a streamlined process for resolving disputes.

6. Fees for International Transactions: Certain debit cards impose charges for conducting transactions overseas. Debit cards may incur additional expenses for international travel, such as foreign transaction fees and currency conversion charges, which render them less economically viable in comparison to specific credit cards.

7. Insufficient Safeguards for Online Transactions: While debit cards typically include fraud protection, online purchases made with a credit card may be more secure. Unauthorized debit card transactions have the potential to directly affect the balance of the user’s bank account.

Difference between Credit Cards and Debit Cards


Credit Cards

Debit Cards

Source of Funds It is a borrowed money from the issuer of cards. Direct access to the cardholder’s bank account
Spending Limit Credit limit is decided by the card issuer It is limited to the available balance in the account
Interest Charges Accrues interest if the balance is not paid in full by the due date No interest charges as transactions use the cardholder’s own funds
Credit Score Impact Can impact credit score positively or negatively based on usage and payment history Does not contribute to or affect credit scores
Overdraft Protection Not applicable in absence of linked account May have overdraft protection, but overdraft fees may apply
Rewards and Perks Often includes rewards programs, cashback incentives, and other perks Generally lacks rewards programs and perks
Security Credit card offers fraud protection, and liability for unauthorized transactions is limited Secured with a PIN, offers fraud protection, and liability is limited
Cash Withdrawal Cash advances are possible, but they result in high fees and interest Can withdraw cash from ATMs using the linked bank account
Building Credit History Credit card can help build or damage credit history based on usage Does not contribute to building or improving credit history
Foreign Transactions Commonly accepted for international transactions with potential foreign transaction fees Accepted for international transactions, but may have foreign transaction fees
Debt Accumulation Involves borrowing money, increasing the risk of debt accumulation Uses the cardholder’s own funds, reducing the risk of debt accumulation
Budgeting Control May tempt users to overspend and accumulate debt Promotes budgeting control as transactions are limited to available funds
Availability Requires credit approval; eligibility criteria apply Generally accessible to individuals with a bank account, regardless of credit history
Chargeback Protection Credit cards offers chargeback protection for disputed transactions May offer chargeback protection, but the process may be less robust than with credit cards


In summary, debit and credit cards each present unique benefits and drawbacks, enabling a wide range of financial requirements and personal preferences. In addition to enabling access to personal funds, debit cards eliminate the risk of building up debt and encourage budgetary restriction. They may, however, offer inadequate protections against fraud and lack features such as credit-building advantages. Conversely, credit cards afford individuals the ability to obtain loans, establish credit histories, and frequently offer rewards. However, they also entail the risk of incurring exorbitant interest expenses and the temptation of debt accumulation. The choice of whether to use debit or credit cards is ultimately dependent upon an individual’s purchasing patterns, financial objectives, and preferred degree of flexibility and control in handling personal finances.


What is the main difference between debit and credit cards?

The use of a debit card permits direct withdrawals from a bank account balance. In contrast, a credit card functions as a collateral-based short-term loan provided by the card issuer, enabling the holder to withdraw funds or make payments. At the conclusion of the invoicing cycle, all of your credit card expenditures are consolidated into a single statement, as opposed to repaying this short-term loan on each use.

Do every credit card involve an annual or initial fee?

Not all credit cards impose an annual or application fee.

What follows if the credit card account is not paid in full and on time?

Finance charges will be assessed on the remaining balance if the credit card application is not paid in full by the specified due date. Annually, the interest rates assessed on non-bill payments fluctuate between 30% and 49%. Furthermore, non-payment of the entire balance may lead to the termination of the grace period applicable to subsequent credit card transactions. Additionally, interest would be charged on all new credit card purchases until the balance is paid in full.

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