Difference between a credit card and debit card
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
18th January 2021
4 minute read
They may look similar when they’re sitting snugly in your pocket, but put them to use and they’ll behave very differently indeed. Are you clear when you should reach for your credit card and when you’d be better off choosing your debit card?
Having a knowledge of how both debit and credit cards will help you make up your mind when you reach the till. The Guru knows his stuff when it comes to choosing between a credit or debit card, but he has been known to absentmindedly use a tarot card to pay for his big shop, which doesn’t go down well with shop assistants.
Debit vs credit card: as you spend
Whilst you might have the option of using your credit card or debit card when you come to pay for things, it’s worth thinking about how you would like to use them before you reach the cashier. It can be very easy to grab the first card out of your purse or wallet without giving it a second thought, but this can easily lead to overspending. Instead, read up on the major points before you start tapping that card.
Credit card vs debit card: points to consider
- The funds
- The fees
- Your spending style
- Consumer protection
When tapped (or swiped), a debit card takes money from your bank account instantly. It may take a few days to physically leave your account, but there’s an immediate check on whether you have the funds in your account or sufficient-agreed overdraft to cover your purchase. If you don’t, the card issuer will decide whether they’ll allow the transaction to go through and issue any relevant charges.
With a credit card, the money doesn’t move quite so quickly, though you could still have a transaction refused if you’ve maxed out your credit limit. Perhaps the biggest difference is that with credit cards, you’ll pay interest if you don’t pay back the money you’ve used within an agreed period of time, sometimes up to 55 days.
After this point, your interest is backdated so that you pay interest from the original transaction date and the amount you’re charged is based on your APR. If you’ve got a 0% purchase card you won’t need to pay interest on your balance for a certain period – maybe months or even years, but you will always need to make monthly payments of a set minimum amount.
In contrast, with a debit card, you’re spending your own money, so unless you go into your agreed (or unagreed) overdraft, there’s no interest to pay. Definitely worth considering in the debit vs credit card debate.
Both types of plastic are widely accepted, and it is now illegal for retailers to charge a fee (surcharge) for using a credit card.
Both debit and credit cards can usually be used abroad with fees associated for doing so, though if you have a special travel credit card without foreign exchange fees it can work out considerably less expensive.
Your spending style
As a general rule, most credit cards shouldn’t be used for everyday spending. If you’re using them to plug the gap between your income and outgoings, this could result in your debts spiralling like a magic carpet in a desert typhoon. But if you’re very financially aware and good with your money, then a credit card with cashback or other reward schemes can be used to pay for everything from your lunch to the petrol in your car. Ensure you spend what you would anyway and don’t leave a balance on the card.
Because they’re connected with your bank account, debit cards and their use can also come with perks – some offer discounts with particular retailers, for example. However, when it comes to withdrawing money from an ATM, while doing so with a debit card is usually free, withdrawing from a credit card can rack up some hefty fees.
You can check out the Money Guru Consumer Purchase Protection guide for more knowledge about the potential backup your card can give you.
As a starting point, it’s good to know that credit cards offer cover under Section 75 of the Consumer Credit Act. This means when you purchase or pay towards goods costing between £100 and £30,000, your card provider is jointly responsible for the transaction. They could be called upon to pay for refunds or repairs if goods don’t turn up or aren’t up to scratch if retailers and service providers go bust or won’t cooperate.
You may find that individual cards have other forms of consumer protection built in too. Chargeback is a scheme that applies to debit cards and is voluntarily signed up to by some credit card issuers, (Visa, Mastercard and Amex). This covers purchases under £100 and over £30,000. It relies on your bank to reverse a transaction which can take some time.
Credit vs debit comparison: what works for you?
For some people, having a credit card is too much of a temptation to spend money or you may already have debt and adding to it would make issues worse. At the other end of the spectrum, this type of borrowing can sometimes have benefits, provided you’re managing debt wisely or clearing it completely.
Choosing a debit card
If you’re looking to make a purchase on everyday items or withdraw cash, a debit card linked to a current account is probably the best way to go.
Chances are you will already have a current account to do this with, but you might want to think about switching current accounts to get a switch incentive or better perks. Find out whether you should switch current accounts, or start browsing our range of accounts using the link below.
Choosing a credit card
Using a credit card will allow you to spread the cost of a more expensive purchase and will also give you additional protection through Section 75 of the Consumer Credit Act.
You’ll likely already have realised that you need a really good credit rating to secure the very best credit card deals, but did you know your credit rating can also affect your ability to get a debit card? It’s always worth checking out your credit score before you start applying, just to get a heads up on if you’re likely to be accepted. You can also read more about checking your eligibility here.
You can read up on getting your first credit card here, or if you’re ready to start looking, try our free online comparison tool moneymatcher to narrow down your search.