How Does a Debit Card Differ From a Credit Card?

Carrying a card for everyday purchases can make life much more convenient, but the question you have to ask before opening your wallet is which card you should use. Credit cards and debit cards will both allow you to pay for the things you need, but each offers unique functions that separate one from the other.
 
What is a debit card?
 
Investopedia contributor Greg Depersio notes a debit card is tied to a savings or checking account, which means your ability to use it is relative to the balance in your account. When you make a purchase, the money is debited out of that account, typically within 24 hours. This makes it a good option if you don’t want to spend more than what you have, but you’ll need to be cognizant of how much money you have when you use your card. If the transaction occurs and there is not enough money in the account to cover it, you will overdraft and could be hit with a fee.
 
For situations where cash is necessary or preferred, you can use your debit card to withdraw funds at an ATM. This will require you to input a unique PIN, which helps safeguard your money in the event your card is stolen. You may also need to put in your PIN when using your debit card to make purchases, and you may be asked to sign for your purchase just as you would with a credit card.
 
Mark P. Cussen, a writer for Investopedia, notes debit cards offer a lower risk of accumulating debt than credit cards. That’s because debit cards seldom carry fees unless you overdraw on your account, and you won’t have to pay any interest on purchases. You won’t, however, be able to use your debit card to increase your credit rating.
 
What is a credit card?
 
When a credit card is issued to you, it comes with a line of credit. As Cussen notes, this indicates the maximum amount of money that you can effectively borrow from the issuer. Depending on your credit score and history, you could qualify for a line of credit of up to tens of thousands of dollars.
 
This is one of the factors that make credit cards particularly risky if you aren’t sound about managing your money. You can borrow as much against that line of credit as you’d like, but if you carry a balance from month to month, you’ll pay interest on what you owe. Credit card interest can be exorbitant, forcing you to pay more money over time. As Cussen notes, some credit cards also carry annual fees, which means you’ll pay more out of pocket.
 
But credit cards can be advantageous if you need to make a purchase and don’t have the cash on hand. And many cards offer unique perks and rewards, including cash back on purchases, travel points, and even discounts at select retailers. What’s more, Depersio points out that using a credit card, making payments on time, and keeping your balance low are great ways to build up your credit score.
 
Credit cards also offer great protection against fraud and theft. Per Depersio, you may be on the hook for fraudulent purchases made using your debit card. But thanks to the Fair Credit Billing Act, the most you can be charged for fraudulent credit card purchases is $50.
 
In many cases, the best approach is to carry both a debit card and a credit card and use both responsibly. If you combine the benefits of these cards and understand how to use them smartly, you can stay out of debt, build good credit, and get the things you need when you need them.