Credit vs. debit: Get the most from your cards

Credit and debit cards may look similar, but their features and uses are quite different. Know the pros and cons of each so you can choose with confidence when you reach into your wallet.

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How they work

Credit card

  • You borrow money from a lending institution and pay back some or all of it each month.
  • When your card is swiped, the credit card company pays the vendor for the purchase.

Access to funds
You have a limit on how much you can borrow, typically based on your creditworthiness.

Debit card

  • It takes money directly from your checking account.
  • When your card is inserted, the funds are transferred from your account.

Access to funds
You can access only as much money as is available in your account or you will face potential fees.

Pros

Credit card

  • Build credit history: On-time payments could help your credit score.
  • Rewards: Many cards offer frequent flyer miles, cash rewards or gift cards.

Spending advantage
You can make a purchase even if you don’t have available funds at the time of the purchase.

Debit card

  • Access to cash: You can often get cash back at point of sale as well as at ATMs.
  • No interest charges.
  • Worry less about how spending will affect your credit score.

Spending advantage
Can help you curb overspending since limits are more concrete and you can likely track activity.

Cons

Credit card

  • Charges interest if you don’t pay your balance in full.
  • Can be easy to go over budget.

Fees
Many charge for things such as making late payments.

Debit card

  • Does not build credit history or improve credit score.

Fees
Overdraft: You may be able to withdraw more than what’s in your account but you’re likely to be charged fees.

Safety and security

Credit card

  • Since funds aren’t withdrawn immediately, you may be protected from fraud or theft.

Liability if lost or stolen

  • Most cards have $0 liability protection for fraudulent purchases.
  • You must report the theft/loss in a timely manner to dispute fraudulent charges.

Reimbursement

  • You may be reimbursed for goods that are damaged in transit.
  • Some offer insurance or warranties on purchases.

Debit card

  • May require a Personal Identification Number (PIN) to authorize purchases.
  • If you misplace your card, you may be able to temporarily lock it via mobile or online banking.

Liability if lost or stolen

  • $50 maximum if you notify the bank within two days of learning the card is missing. After that, liability may increase to as much as $500.
  • Notice must be given within 60 days of receiving your account statement.

Reimbursement
If goods are damaged you likely need to deal with the merchant.

Both credit and debit cards are important parts of your financial life. Knowing when and how to use each of them may help you build a stronger credit history while keeping your debt levels down.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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