Credit Card vs. Debit Card: Which Is Better?

Next time you buy something you’ll probably pull a plastic card out of your wallet instead of a wad of cash. Depending on your preference, that plastic card might be a debit card or a credit card.

Both types allow you to buy things without physically paying in cash. Even though they look similar, there are some key differences between credit and debit cards. Here's what you need to know about these two payment cards and when to reach for one over the other.

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What is a credit card?

A credit card represents a line of credit that is basically a mini ongoing loan between you and a credit card issuer. You can spend up to your credit limit regardless of whether or not you have the cash in your bank account to cover the cost of your purchase.

At the end of the monthly billing cycle, you'll receive a statement showing your total balance owed. While you don’t have to pay the balance in full, you will be required to make a minimum payment each month to remain in good standing.

If you don't pay in full that means you'll carry a balance to the next month. When you do this, you’ll be charged interest. Letting the balance grow will lead to more interest accruing on the card, taking longer to pay it off.

Because a credit card represents a line of credit, activity in your account is reported to the major credit reporting agencies — Equifax, Experian and TransUnion. The length of time the account is open, the balance you carry, and whether or not you make on-time payments can affect your credit score.

Many credit cards come with annual fees. Generally speaking, cards with annual fees offer greater benefits in return, although many credit card issuers also offer solid no-annual-fee cards, too.

Related: How do credit cards work?

What is a debit card?

A debit card is linked to a checking account. Every time you make a purchase the amount is deducted from the amount of money you have in your account.

While debit cards don’t charge interest, you can be charged overdraft fees if you try to make purchases or withdraw more than the amount of money you have. Sometimes a purchase made with a debit card is rejected if there is insufficient funds to cover it. Some banks offer overdraft protection by connecting a savings account to your checking account and transferring funds to cover the cost of a purchase.

Related: What is overdraft protection?

Credit card vs debit card: Main differences

Credit and debit cards are very similar in how they’re used to pay for things. Both are plastic cards that you can swipe at checkout to purchase things like gas and groceries.

Where does the money come from

The primary difference is the type of money each card gives you access to. Debit cards are tied to your bank account and only give you access to the amount of money that’s in your account. If you have $1,000, for example, you can only use your debit card to make $1,000 worth of purchases.

A credit card, on the other hand, isn’t connected to your bank account. It allows you to purchase things up to your available credit amount, regardless of whether or not you have the money in your account. For example, if you have $1,000 in your checking account but have a credit card with a $2,000 credit limit, you can use your credit card to make up to $2,000 worth of purchases (although using that much of your available credit can damage your credit score).

How much you (might) pay in interest

A credit card is essentially a mini loan. It allows you to borrow money and then pay a credit card bill at the end of your monthly billing cycle. Failure to pay the balance by the end of the billing period results in the imposition of interest charges. Credit card interest can accumulate quickly, and maintaining a balance can lead you into credit card debt.

Related: How does APR work on a credit card?

If you're building a credit history

Since credit accounts allow you to borrow money, some other features make it different from a debit card. Major credit bureaus receive reports about credit cards, influencing your credit score. If used properly, they can help you build credit by establishing a reliable credit history. If you take on too much debt, they can make it harder to access other types of loans like a car loan or a mortgage.

The credit bureaus do not receive reports on activity with debit cards. It's simply a way to access the money you already have in your bank account. While using a debit card can help you stay out of debt, it won’t help you build credit.

Whether you earn rewards

Another key difference is rewards. Many credit cards offer rewards like cash back or points you can use for travel. You earn these rewards every time you purchase with your credit card. Some banks may offer rewards for using a debit card but most don’t. Your debit card can assist you in adhering to a budget, but it won't contribute to earning travel points if that's your goal.

How protected you and your money are

The last difference to consider is the level of protection each card provides. A credit card, not linked to your checking account, provides an additional layer of protection between you and your money. If someone steals your card — or if you simply want to contest a purchase — your credit card provides consumer protections that debit cards typically don't.

Related: Credit card purchase protections

When to use a credit card

Depending on your financial goals or what you’re trying to purchase, there may be certain circumstances where using credit might be better than a debit card.

Debit cards have daily spending limits, so if you want to make a purchase that exceeds your debit card’s daily limit, it might be better to use a credit card instead.

Credit cards also offer rewards. Travel reward programs in particular can help you score free vacations or book cheap flights. If you are planning a big trip, like a honeymoon, using a credit card to rack up as many travel points as possible on your everyday spending in the months leading up to it can be a great way to reduce the cost of your trip.

If you’re a student building credit for the first time or you want to improve your credit score, credit cards can help you do just that. Credit card companies report account activity to major bureaus, contributing to the building of your credit score. A good credit score can give you access to better loan terms, especially if you’re trying to make a big purchase like buying a house.

The last thing to consider is financial protection. Credit cards allow you to purchase things without providing a direct line to your bank account. This means fraudsters are unable to clean out whatever’s in your bank account if they get hold of your card and it makes it easier to dispute charges that show up on your statement.

When to use a debit card

A debit card is better to use if you’re in debt or concerned about getting into debt. Debit cards allow you to spend money you have, rather than spend money you don’t. It can be a useful tool to help you build good financial habits as a result.

You also might consider using a debit card if you want to access cash. You can do this by going to an ATM or asking for cash back the next time you check out at the grocery store.

FAQs

Can I use my debit card as a credit card? 

You can use a debit card as a credit card if you opt to not use your PIN at checkout. When prompted to enter your PIN you can hit ‘cancel’ and run the purchase like a credit card instead. This isn’t an option everywhere so if you’d like to use your debit card as a credit card, ask the person assisting you at checkout first.

Understand that this does not allow you to spend money you don't have. Even if you use a debit card as a credit card at the checkout, it still promptly deducts the money from your checking account.

Is it better to use a credit card or a debit card?

One card isn’t better than another, but there are some cases where you might prefer to use one over the other.

Credit cards, not linked to your bank account, offer enhanced protection against fraud. Credit cards also offer perks and rewards, which can help you save money on big purchases. A debit card can be a better option if you are trying to spend within your budget and avoid the risk of going into debt.

Is a credit card safer than a debit card?

Credit cards are typically safer than debit cards. Credit cards are separate from your checking account making it difficult for a thief to steal from you. They also come with more consumer protections that allow you to dispute purchases. If someone steals your card and makes a fraudulent purchase, or if you made a purchase you aren’t satisfied with, you can work with your credit card company to get a refund.

On top of this, credit cards also offer alerts and notifications if something doesn’t look right on your account. This can help you address fraud sooner rather than later. It can take longer to spot fraud on a debit card which can make it difficult to resolve any issues quickly if they pop up.

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