There are many benefits (and some drawbacks) to both credit cards and debit cards. But when it comes to what each card does, there are distinct differences. Having both is perfectly fine, as they serve different purposes. But if you’re trying to decide which one is right for you, then it’s good to know some of the pros and cons of both.

What’s the Difference?

The most basic difference between a debit card and a credit card is how they affect your bank account. 

Debit cards allow you to spend money by drawing on funds you have deposited at your bank, but you can’t exceed what you have in the account without penalty.

Credit cards allow you to borrow money from the card issuer up to a certain limit, but that money has to be paid back within a certain period of time

Building Credit

One major benefit of a credit card is the ability to build credit, something that a debit card doesn’t offer. You need a credit history to make major purchases like a car or a house.

That said, this can go both ways. When you get a credit card, its use is usually reported to the major credit bureaus — TransUnion, Equifax, and Experian — and therefore shows up on your credit reports.

So, if you make your monthly credit card payments on time, you can build good credit. If not, it will lead to bad credit.

While a debit card doesn’t help you build credit, if you make a mistake like overdrawing the account, it won’t hurt your credit either.

Convenience

There is some convenience that a debit card offers over a credit card–instant access to your money, for one. While it varies by merchant and credit card machine, you often get to skip using a PIN or showing a Photo ID to make a purchase with a debit card. Also, because you’re spending money you already have, there’s no worry about having to pay it back later.

Debit cards also typically have fewer fees than credit cards. 

Credit card fees include interest (APR), annual fees, late payment fees, foreign transaction fees, balance transfer fees, and cash advance fees.

Debit card fees include monthly, overdraft, ATM, and foreign transactions.

Benefits

Credit cards typically offer more rewards than debit cards do.

Many offer rewards on purchases through programs like cash back, points, or miles. Additionally, many credit cards offer a sign-up bonus in cash. Reward programs offer a lot of value, but might take a little effort to extract. Annual fees are also a factor to consider when selecting a credit card, so be sure to weigh them against the value you’ll get from the card. 

Debit cards have historically had pretty limited rewards programs, but a few travel-oriented cards have emerged recently. However, credit cards remain the much stronger option if rewards are a priority. 

If you don’t have a strong credit history, you might not be able to get a rewards card right away — but as you build your credit, you’ll probably qualify for more and more.

Fraud Protection

Credit cards offer significantly more fraud protection than debit cards do, which is one of the most important distinctions between the two.

Under federal law, a credit cardholder’s liability can’t exceed $50, no matter when the loss is reported. Most major card networks, like Visa and Mastercard, also have zero-liability policies that limit your liability to $0 so long as you report the loss as quickly as possible.

Debit card protections are much more time-sensitive. The $50 limit applies only if the loss is reported within 2 business days of discovery. After two business days, your liability spikes up to $500. After 60 days, there is potentially unlimited liability for unauthorized transfers.

Due to this gap in protection, consumers are advised to use credit cards rather than debit cards for transactions where their card isn’t present (such as online purchases and recurring billing). Regardless of which card option you choose, it’s smart to enable transaction alerts through your banking app to catch unauthorized activity quickly. 

Conclusion

In the end, having both a credit and debit card is perfectly fine, as both serve different purposes. Credit cards offer stronger fraud protection and the potential to earn rewards, but also come with greater responsibility and risk. Debit cards are much simpler, and keep spending limited to what you already have. 

Take some time to determine which option is best for you based on your own spending habits, or figure out how to utilize both!

There are many benefits (and some drawbacks) to both credit cards and debit cards. But when it comes to what each card does, there are distinct differences. Having both is perfectly fine, as they serve different purposes. But if you’re trying to decide which one is right for you, then it’s good to know some of the pros and cons of both.

What’s the Difference?

The most basic difference between a debit card and a credit card is how they affect your bank account. 

Debit cards allow you to spend money by drawing on funds you have deposited at your bank, but you can’t exceed what you have in the account without penalty.

Credit cards allow you to borrow money from the card issuer up to a certain limit, but that money has to be paid back within a certain period of time

Building Credit

One major benefit of a credit card is the ability to build credit, something that a debit card doesn’t offer. You need a credit history to make major purchases like a car or a house.

That said, this can go both ways. When you get a credit card, its use is usually reported to the major credit bureaus — TransUnion, Equifax, and Experian — and therefore shows up on your credit reports.

So, if you make your monthly credit card payments on time, you can build good credit. If not, it will lead to bad credit.

While a debit card doesn’t help you build credit, if you make a mistake like overdrawing the account, it won’t hurt your credit either.

Convenience

There is some convenience that a debit card offers over a credit card–instant access to your money, for one. While it varies by merchant and credit card machine, you often get to skip using a PIN or showing a Photo ID to make a purchase with a debit card. Also, because you’re spending money you already have, there’s no worry about having to pay it back later.

Debit cards also typically have fewer fees than credit cards. 

Credit card fees include interest (APR), annual fees, late payment fees, foreign transaction fees, balance transfer fees, and cash advance fees.

Debit card fees include monthly, overdraft, ATM, and foreign transactions.

Benefits

Credit cards typically offer more rewards than debit cards do.

Many offer rewards on purchases through programs like cash back, points, or miles. Additionally, many credit cards come with a sign-up bonus in the form of cash. Reward programs have a lot of value to give, but might take a little effort to extract. Annual fees are also a factor to consider when selecting a credit card, so be sure to weigh them against the value you’ll get from the card. 

Debit cards have historically had pretty limited rewards programs, but a few travel-oriented debit cards have emerged recently. However, credit cards remain the much stronger option if rewards are a priority. 

If you don’t have a strong credit history, you might not be able to get a rewards card right away — but as you build your credit, you’ll probably qualify for more and more.

Fraud Protection

Credit cards offer significantly more fraud protection than debit cards do, which is one of the most important distinctions between the two.

Under federal law, a credit cardholder’s liability can’t exceed $50, no matter when the loss is reported. Most major card networks, like Visa and Mastercard, also have zero-liability policies that limit your liability to $0 so long as you report the loss as quickly as possible.

Debit card protections are much more time-sensitive. The $50 limit only applies if the loss is reported within two business days of discovery. After two business days, your liability spikes up to $500. After 60 days, there is potentially unlimited liability for unauthorized transfers.

Due to this gap in protection, consumers are advised to use credit cards rather than debit cards for transactions where their card isn’t present (such as online purchases and recurring billing). Regardless of which card option you choose, it’s smart to enable transaction alerts through your banking app to catch unauthorized activity quickly. 

Conclusion

In the end, having both a credit and debit card is perfectly fine, as both serve different purposes. Credit cards offer stronger fraud protection and the potential to earn rewards, but also come with greater responsibility and risk. Debit cards are much simpler, and keep spending limited to what you already have. 

Take some time to determine which option is best for you based on your own spending habits, or figure out how to utilize both!