Below, you’ll find everything you need to know when it comes to using a credit card vs. debit card.
Whether for personal use or business, it’s of the utmost importance to understand the difference between using a debit card and using a credit card.The Gist
We’ll cut to the chase for the already financially savvy:
Credit Card: Use your credit card for as many transactions as possible unless cash discounts are given. Pay off your credit card every month.
Debit Card: Only use for ATM withdrawals when needed.
Not so financially savvy? No worries, this complete credit card vs. debit card guide below is for you.
Because if you don’t understand the differences between debit and credit cards, it could cost you a fortune in more ways than one.
What is a Debit Card?
A Debit Card is what your banks gives you when you open a checking account. These cards directly access your funds. No money in your account? Your card will be declined for insufficient funds.
As long as there is money in your account, you can use the debit card to withdraw money from an ATM, purchase items at any establishment that accepts credit cards, and even use it to make one-time or recurring purchases online.
However, depending on your bank, beware! If you have insufficient funds to purchase an item, your bank may still allow the transaction to go through.
Yes, you’ll now have negative funds in your account that you owe the bank. And on top of that, you will most likely be charged an insufficient funds fee/overdraft fee for about $35.
And if your bank is truly classy, they may even allow multiple transactions to go through and charge you a fee for each transaction.
Debit cards even look exactly like credit cards. You will see a processing logo such as Visa, a magnetic strip on the back, and now the chip for more secure transactions.
Don’t be fooled though. While d
What is a Credit Card?
A credit card is a financial tool that you can use to buy items on credit with the understanding that you will pay the credit card company back for those purchases at an agreed upon time.
Essentially the credit card company is fronting you the money to buy things.
Anything you purchase with a credit card must be paid back to the credit card c
You can use credit cards to make purchases at any business that accepts credit cards or online or in-person. You do not store money on your credit card like you do with a debit card, thus you cannot use a debit card to withdraw money from an ATM. (There are things called cash advances with credit cards, but I highly advise against this)
It’s also common to have multiple credit cards whereas it is more common to have a single bank account. For right now though, just focus on one credit card at a time!
Getting a Credit Card
You have to apply for a credit card, unlike a debit card that is provided by your bank when you open an account.
To a
The Credit Card Company will perform a credit check on you and will ask you questions about your income. Normally the decision is automatic as to whether you will be approved or declined.
If approved, you’ll know your credit limit (more on that in the next section) and approximately when you will receive the credit card in the mail.
FYI – Credit Cards normally come in nondescript envelopes that look entirely bland. Unlike those colorful and elaborate random c
Credit Card Limits
Credit card companies want to have an idea as to how much credit to give you. The amount of credit they extend to you is called a credit limit.
Ever hear of someone maxing out a credit card? This means they spent the max limit the credit card company has given them.
Credit Limit Example:
The company agrees to provide you with a $10,000 limit. You can spend up to $10,000 total on the card. Any transaction after $10,000 will be declined.
Pay off $5,000 on your credit card? You now owe $5,000 but since you have a $10,000 limit, you can spend up to $5,000 more.
Credit limits vary per person. Companies determine how much money they’re willing to risk lending you based on your credit score and income. After all, credit card Companies are fronting you money to spend. They want to be paid back!
Typical credit limits can vary. We’ve seen as low as $300. Good credit and decent income can get your credit card limits between $5,000 and $20,000. If you are a baller, they will give you a black card that has no limit.
The Catch-22 of Credit Cards
Never had a credit card before? Then you might be declined for lack of credit. Wow, what a catch-22!!
It’s like wanting to work as a server in a restaurant but you have no restaurant experience.
It’s a job that near anyone can do but they don’t want you without experience.
(Note: We know working in the service industry is stressful and hard and that’s why we tip our wait staff well. We respect you. Please don’t spit in our food…)
Never Had a Credit Card? Tips to Getting Approved
It might be hard to get a credit card if you’ve never had one.
Once you have one though, you’ll start building credit and it will be easier in the future to get another credit card, loan, or even a utility account. This assumes that you follow our advice and use the credit card properly.
Try this to score your first credit card:
- Talk to your bank. If you have an account in good standing, they might be more likely to approve you.
- Try Capital One. Capital One is more likely than other institutions to give credit cards to individuals with little credit history. It might be an incredibly low credit limit, but this creates a great first step to building your credit history to eventually get you a higher credit limit.
- Find a cosigner and confirm your credit will be affected by the account. A co-signer with good credit should be able to get you approved. *****
***** Getting a cosigner for a credit card should be taken with extreme caution. This person would likely be a family member, close friend, or romantic partner. Money does weird things to people. Should anything go awry with the credit card situation, such as accumulating interest and fees from unpaid balances, then the cosigner would rightfully be upset with being fiscally responsible and having a damaged credit score. Use caution here.
Why You Should Be Using A Credit Card Over a Debit Card
In a nutshell:
- POINTS!
- Financial Security
- Build and Maintain Credit History
About Them POINTS!
Credit cards give points for every transaction you make. The amount of points you get per transaction depends on the card.
Points Example:
Get 1 point for every $1 spent. You buy a computer for $1,000.00. You get 1,000 points that you can redeem.
How much
Wow only about 1 cent back per point? Yup. Know how many cents back you get per dollar spent on a debit card? Zilch. Zero. None. Nada.
Ways to Use Rewards Points
- Cash Back
- Gift Cards
- Travel
- Online Shopping
You can use your points to get cash back, purchase gift cards through approved stores, book travel such as airfare or hotels, and even shop online at approved retailers.
Not all credit cards are opted into the same retailers. If using your points for travel or shopping online is important to you, then you should compare the rewards sections of credit cards more closely.
Why not just get cash back from your points to purchase travel or shop online?
- Once a point is earned, you will always get cash back for 1 cent for every point.
- Sometimes if you book travel or shop online through the credit cards rewards site, you can get about 1.2 cents or more for every point.
- This is where using your points can be a game. But it’s a game you can play only if you use a credit card.
Credit Card Vs. Debit Card Security
Credit cards offer better financial security than debit cards in the sense that these cards are not directly connected to your bank account.
redit card companies monitor for fraud vigilantly. If your information gets compromised and someone makes purchases on your account, what happens to you?
Typically you will be refunded for fraudulent activity that occurs on your credit card. But normally you are not refunded for fraudulent activity on your debit card. Also the debit card can be used to withdraw funds from an ATM. Fraudulent ATM withdrawals from a debit card are almost never reimbursed.
Don’t think this can happen to you? Well if it isn’t that waitress at the JFK Airport restaurant that copied my credit card without me knowing and fraudulently used my card for over $700 worth of purchases at Macy’s then it’s probably your information being stolen from a hack.
Ever hear of a company’s data getting hacked? Too many to count now… Target, Home Depot, Marriott, eBay, etc.
The moral of the story is that you are much more protected from fraud with a credit card than with a debit card. I got refunded for those fraudulent charges.
My friend recently had her debit card information stolen. Someone withdrew $300 from an ATM out of her checking account. While the bank caught the fraudulent activity and the debit card was canceled before more damage could be done, she was not refunded the money that was withdrawn from her account.
Fraudulent activity on credit cards is mostly always refunded. Also, a credit card cannot be used to withdraw funds from your checking account so you do not have to worry about that.
credit cards are financially safer than debit cards. You can take that to the bank.
Building and Maintaining Credit History
Having Credit History is incredibly important to help you with almost all financial transactions in life. Having a credit card can help you build up a good credit history.
Things you might need that can be impacted by a Credit Score / Credit History:
- Home Mortgage
- Financing
- Getting a cell phone on a monthly payment plan
- Buying or Leasing a Car
- Getting a business or personal loan
- Utilities
- Some Electric and Gas companies want to make sure you have good credit before supplying you with power.
Having a credit card helps you build a Credit History, but you need a GOOD Credit History.
Tips to maintaining a GOOD Credit History and having a GOOD Credit Score:
- Pay off your credit card every month on-time.
- Always pay the full statement balance from the previous month.
- If you have an old credit card that you do not use, keep it open. Closing the account can hurt your credit score for a number of reasons.
Related: LendEDU has a simple article about what you should not be using your credit card for. It’s from 2015, but still holds true today. Here Are 6 Things You Shouldn’t Be Using a Credit Card to Pay For
Our Credit Card Philosophy
Use the credit card like you’re “writing a check” or “paying cash.”
You should have the funds in your account to pay what you’ll owe on the credit card. Would you go to the store and write a check that will bounce or try to buy something for $100 when you only have $50 in your pocket? No.
If the funds are not currently in your account but you’re getting a paycheck next week and the credit card bill isn’t due for 3 weeks and you have this purchase already in your budget, then fine. Just don’t try to buy things you couldn’t afford otherwise.
Do not use a credit card to finance a lifestyle you can’t afford.
You might look cool with new kicks and a new car but debt isn’t attractive.
Purchasing an item on your credit card and not paying it off when it’s due can cost you serious money. Interest rates on credit cards are not cheap.
Pay for a lifestyle you can afford by working card. Don’t have the cash but you need something to get you by? Try getting a loan from a friend or a Home Equity Line of Credit or another short term loan instead. credit card interest rates can be over 20%.
Get a credit card without an annual fee.
credit cards can charge an annual fee in order to use the card. Normally this is because they are willing to give you more points for certain types of transactions.
Unless you have a lot of money and plan on buying a lot of items with your credit card, the
Do the math to see if fancier cards make sense for you. However just sticking with a card with no annual fee is probably your best bet.
Common Credit Card Objections
It feels like I’m paying for the transaction twice.
Ugh. Really? Well then, don’t enjoy the points you get using a credit card and figuratively wipe your rear-end with hundreds of dollars a year.
Retailers build in credit card fees to their pricing. Unless you’re paying cash and getting a discount, that retailer is paying a fee to accept your credit card or debit card. Using a debit card, no points. Using a credit card, POINTS! That could be worth hundreds or thousands of dollars a year.
I don’t want to pay all of that interest.
- PAY YOUR CREDIT CARD BILL ON TIME
- DO NOT CARRY A BALANCE AND PAY INTEREST
We believe in you to use a credit card properly and get to use those points. If you do the above consistently, you won’t have to worry about paying tons of interest.
Just having a debit card is easier than also carrying around a credit card.
Using a debit card, frankly, is dumb. It significantly increases the risk of someone accessing funds in your checking account that may not be refunded.
Using a credit card gives you points and protects you against fraudulent activity.
In the credit card vs. debit card debate, you can see where the clear winner is.
The Top 3 Credit Cards We Recommend
Are you ready for a credit card? We did the research and found these cards for you. We hope you like them!
The credit cards are listed in order of the easiest to get approved. All of these cards have no annual fee.
Capital One Secured Mastercard
Credit Score
- Rebuilding Credit
- Little or No Credit History
The Difference
This is a secured credit card. A refundable deposit of up to $200 is required as security for the credit card company in case you do not pay off your balance. There is no interest on the deposit.
The initial credit line is $200. While this is a low amount, you can access a higher credit line after your first 5 months of making monthly payments on time. You can deposit more money for the security deposit to access a higher credit line if you prefer.
The Bottom Line
This is your safest bet to getting your first credit card if you have bad credit or no credit history. Capital One offers several other credit cards (Platinum or Journey Student Rewards) that require an average Credit Score and do not require a deposit.
Have questions if you should apply for the Secured Mastercard or a standard card like the Platinum? Reach out to Capital One and discuss with their team before applying.
Chase Freedom Unlimited
Credit Score Needed: Average
The Difference
- Unlimited 1.5% Cash Back on Every Purchase
- Get a $150 Bonus After Spending $500 During First 3 Months
The Bottom Line
Chase has a line of solid credit cards that are backed by a good rewards program. Definitely not as easy to get as the Capital One Secured Mastercard but is a solid card if you can get approved.
The Freedom Unlimited is a fairly standard credit card. If you look at Chase, you will see there is a similar card called Freedom.
Remember how we said that a lot of choosing a credit card comes down to the different rewards to pick?
Freedom gives you up to $1,500 on select purchases that earn 5% cash back every quarter with all other purchases earning 1% cash back. So it’s that or straight up 1.5% cash back with Freedom Unlimited.
The Freedom Unlimited and Freedom are both good cards. Both offer the $150 Bonus after qualified spending. Now it just depends if you want to start playing the rewards points game or not. The choice is yours.
Amazon Prime Rewards Visa
Credit Score Needed: Good
Other Requirements: Amazon Prime Member
The Difference
You’ll get a $70 Amazon Gift Card on approval.
Then you get 5% back on purchases on Amazon.com and at Whole Foods. 2% back at restaurants, gas stations, and drug stores. 1% back on all other purchases.
No Foreign Transaction Fees.
The Bottom Line
If you’re an Amazon Prime Member with good credit, this is the card for you!
Great Cash Back on normal life purchases as well as all the stuff you might be buying on Amazon anyway.
You need good credit for this card. Don’t have that? Then use this as motivation to build up your credit by following our credit card philosophy.
Credit Cards for Business
Are you a business owner that wants some advice on using credit cards with your business? Check out the Credit Cards For Business Article by this author, Andrew Greenspan, Founder of Wexford Entrepreneurial Partners.
What do you think about the credit card vs. debit card debate? How are you using credit or debit cards?