On the surface, debit cards and credit cards seem quite similar. After all, both are accepted practically anywhere, and both sport some of the most iconic names in payments, like Visa or Mastercard.
However, there are many major differences between the two, including:
It's your money
When you swipe a debit card, you're making a purchase with your own money because your debit card is a direct link to your bank account. With a credit card, you're essentially taking out a loan from your card issuer that you pledge to repay.
No bills
You won't owe a monthly bill since you're using your own money with a debit card. With a credit card, you must make a minimum payment on your balance every month. And if you don't pay off the entire balance each month, you'll also pay interest.
Spending limits
With a debit card, you're limited only by how much money you have in your bank account. Credit card issuers will set a certain credit limit partially based on how creditworthy they think you are and increase it over time if you use the card responsibly.
Application
A debit card is typically an included benefit of most checking accounts and, in some cases, savings accounts. A debit card can be yours as long as you don't have a checkered banking history. However, a credit card requires a lengthier application that includes a credit check. If your credit score is low, you may not qualify for most credit cards.
Effect on credit
You won't build your credit history with a debit card since you aren't actually borrowing anyone's money. Responsible usage of a credit card can raise your credit score -- and irresponsible usage can lower it.
Risk from theft
If your debit card falls into the wrong hands, a thief can access your bank account directly. Unfortunately, you could be on the hook for $500 of the damage if you don't file a report within two days of fraud or theft.
With a credit card, you'll only be charged a small (if any) amount. Your credit card issuer has a lot more incentive to help you, since the thief is stealing their money, not yours.
