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

Learn the difference between a credit and debit card and when to use each one.
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Question: What Is the Difference Between a Credit Card and a Debit Card?

Answer:

Understanding the difference between a debit card and credit card allows you to make wise financial decisions. Debit cards and credit cards are accepted at the same places. Debit cards all carry the symbol of one of the major types of credit cards on them, and can be used anywhere that credit cards are accepted. They both offer convenience.

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 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 merchants account. It can take a few days for this to happen, and the hold may drop off before the transaction goes through. For this reason, it is important to keep a running balance of your checking account to make sure you do not accidentally overdraw your account. It is possible to do that with a debit card. 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. 

What Is a Credit Card?

A credit card is a card that allows you to borrow money in small amounts at local merchants. You use the card to make your basic transactions.

The credit card company then charges you interest on your purchases, though there is generally a grace period of approximately thirty days before interest is charged if you do not carry your balance over from month to month.

Debit Cards vs Credit Cards

In the past many people felt that you needed a credit card to complete certain transactions such as rent a car or to purchase items online. They also felt that it was safer and easier to travel with a credit card rather than carrying cash or trying to use your checkbook. However debit cards offer the same convenience without making you borrow the money to complete the transactions. It can be difficult to determine when to use a credit card or a debit card. Some argue that a credit card offers additional insurance on purchases and makes it easier to request a refund or a return. You should carefully read the disclosure information for your credit card to understand the benefit.

Choosing the Best Card for the Situation

It is better to use your debit card whenever possible, because it will prevent you from accidentally falling into the credit card trap.

When you can pay cash for most items, you are doing better financially. Some rental car agencies and hotels may still request a debit card over a credit card because they want to have a card where they can bill you for damages to their property. Be sure to check with the hotel or agency before you travel to make sure you can use your debit card instead of your credit card. 

Protecting Your Credit

Both a credit and debit card have similar risks when it comes to theft. If your credit or debit card information has been compromised, you will need to contact your bank immediately. You should also take additional steps and monitor your credit report to make sure that your identity was not stolen, It is important to check your statements each month to make sure you can identify all charges. The banks limit the length of time that you can report a fraudulent charge on the account. The bank will freeze the account and issue you a new card when you report that the card has been stolen or you see an unauthorized transaction. 

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