Credit Card vs. Debit Card: What’s the Difference?

There are advantages and disadvantages to both a credit card and a debit card. Determining which card is better comes down to how you plan to use the card and how responsible you are as a cardholder. Before determining which card is right for you, it’s important you understand the various benefits, fees, and uses of each. 

Fraud Protection

Both debit and credit cards offer zero-liability protection on fraudulent purchases. But the process of getting your money back differs depending on the type of card you use. According to the Fair Credit Billing Act, the maximum amount you may lose on an unauthorized credit card charge is $50, and the investigation will likely be over by the time your statement balance is due. However, under the Electronic Funds Transfer Act, your potential loss on a debit card may be as much as $500 if you report the fraud more than 2 days after it took place. What’s more, the bank may not restore that cash to your account immediately. If you need that money now, you’ll be at the mercy of the bank. In both cases, you’re not responsible for any amount of the unauthorized transaction if you report the card missing before any fraudulent purchases take place. 

Spending Control

The winner on this one is fairly obvious. Because debit cards are linked to a checking account instead of a line of credit, the only way to go into debt with this type of card is to overdraw your account. And you can avoid this by opting out of overdraft protection. It’s possible to use credit cards without going into debt, but people who pay off their balances in full each month may be in the minority. According to a 2020 NerdWallet study, households with credit card debt owe $7,149 on average. All things considered, it’s easier to overspend with credit cards than with debit cards. 

Rewards

Rewards are a common feature of credit cards. It can be difficult to find a debit card with a good rewards program. According to Elan Financial Services, just 17 out of the top 25 financial institutions offer a debit rewards program. Even then, credit cards offer big profits for banks, so they’re more competitive in offering rewards to entice people to use their cards more often. As such, you’ll likely find better rewards and big sign-up bonuses with credit cards. 

Fees

When applying for a credit card, it’s a smart idea to review the card’s rates and fees as part of your application submission. When doing so, you’ll notice that most credit cards charge a slew of fees. Late fees, cash advance fees, balance transfer fees, and foreign transaction fees are all common among credit cards. Some even charge an annual fee. And that’s all on top of interest charges if you carry a balance. Debit cards, on the other hand, typically don’t come with a lot of fees. In fact, if your checking account charges a monthly fee, you may be able to get the fee waived by using your debit card regularly. Better yet, with a Chime Spending Account and Chime Visa Debit card, you can stop stressing over unnecessary fees¹. That’s right – no monthly maintenance fee, no overdraft fee, and no foreign transaction fee. 

Credit Building

Credit cards can help you build your credit and demonstrate that you are a trustworthy borrower. Credit card companies report your borrowing and payment history to the 3 major credit bureaus – Equifax, Experian, and TransUnion — and this helps shape your credit score. Each time you use your credit card, your credit history is reflected on your credit report. This includes positive things such as on-time payments and low credit utilization, as well as negative things such as late payments or delinquencies. Your credit report information is then used to calculate your credit scores. In contrast, debit cards do not have the ability to build your credit because you are using your own money. So, using a debit card alone won’t help you establish or build a credit history.