With magnetic stripe, EMV chip and 16 digit card number, every credit card and the debit card look almost identical. During our purchase, you can take the help of any one of these to make the purchase convenient. But there happens to be one main difference between debit cards and credit cards.
The debit card allows a person to spend money only by drawing funds. On the other hand, a credit card allows you to borrow money from the issuer. For a debit card, the limit is the amount of money you deposit at the bank. But for credit cards, it is the limit upto which the financial institution provides the cardholder.
One should have at least one of these cards in their wallet. The protection and the convenience that they offer are quite difficult to ignore. Before you start using both of these cards simultaneously, you should have a look at at least five major debit card and credit card differences.
Credit cards build credit history
Unlike debit cards, credit cards help to build up the credit history. It is a positive history that helps to reflect the timely payment and low credit utilization ratio and the various negative items like the late payments. The credit report helps to calculate the credit score. Any responsible spender can increase their score by making timely payments. However, if the cardholder can keep their balance relatively low from their limit, they would enjoy good management of finance.
Debit cards avoid debts
Users deposit an amount of cash in their bank account. A debit card helps to withdraw that cash and use it. Debit cards help eliminate any danger related to the racking up of the debt. Retailers know that people spend more when using plastic instead of paying by cash. By taking the help of a debit card, any impulsive spender can avoid any temptations of credit. It can also help them stick to the budget they intend to spend.
A credit card comes with various charges
Debit cards do not charge any annual fee. But credit cards charge an annual fee. It is a kind of short-term loan. Therefore, you need to pay back the amount with a certain interest. Before you choose a credit card, you must look for the card’s annual percentage rate. If the card has a higher annual percentage rate, it will carry out higher costs from month to month. Especially if you want to make any foreign transaction, then using a credit card might increase the fees.
Debit cards have no annual fees
A debit card does not have any fee. You need not have to pay anything extra for utilizing your debit card.
Protection against frauds
When it comes to offering protection to the cardholder, the debit card and Credit Card are responsible enough to provide the needed protection.
Both debit cards and credit cards have their advantages and disadvantages. If anyone does not have control of the amount of money they need to spend, they should go for a debit card. Also, if you have to withdraw money with the help of a card, then they should look for a debit card.
But a credit card happens to be the safest option when going online shopping. If you detect any fraud, you should call up your bank to block your card in any circumstances. However, one should look for various credit card offers before getting a credit card and then indulge in one. These debit Card and Credit Card differences would help one decide upon the financial tools which they wish to select.