Both credit cards and debit cards are accepted at the same places; that’s why you can find it confusing to know their difference. When it comes to convenience and being cashless, they also offer the same. They also look alike.
You use a credit card to borrow money from the card issuer up to a certain limit to make purchases. A debit card allows you to spend money that is only available in your bank account to make purchases.
What Is a Credit Card?
A credit card is a card offered by financial institutions such as a bank that gives the cardholder the freedom to borrow.
The cardholder will then pay back the borrowed money with some interest which mostly depends on the terms of the institution. The card also comes with some perks like discounts, reward points, and cash bonuses.
Benefits of Credit Cards
Credit cards come with many benefits aside from just giving you the ability to borrow. Here are the benefits users of credit cards get.
· Improves Credit History
The credit card you use is a true reflection of your credit report. When you’ve low credit utilization and pay your credit on time, you’ll have a positive history. It will also improve if negative reports such as a bad credit loan debt or late payments are addressed.
Your credit report will then be used to calculate your credit scores. You can raise your credit score by keeping your card balance below the limit or ensure timely payments.
· Credit Cards Come With a Warranty and Purchase Protection
Credit cards provide additional warranties for items you purchase above the warranty offered by brands or retailers. They can help you replace an item that you lost or refund you the price difference when the item you purchased is sold less elsewhere.
· Credit Cards Provide Fraud Protection
They offer more advanced fraud protection than debit cards. You have to report the incident as soon as possible so that you can be protected from fraud.
What Is a Debit Card?
A debit is a payment card that you use to pay for items and services. The merchant deducts money from your checking account rather than from the bank in the form of a loan.
They generally eliminate the need to carry hard cash for purchases. You can also use debit cards to withdraw money from an ATM.
Benefits of Debit Card
Debit cards also have unique benefits that differentiate them from credit cards. Here are the benefits that consumers get from owning debit cards.
· Avoid Debt
A debit card draws money that you have in your bank account. There is no way you can withdraw what you don’t have. With a debit card, impulsive purchases are very minimal since you only stick to your budget. This can help you stay out of debt.
· There’s No Annual Fee
Debit cards don’t charge an annual fee, as in the case with credit cards. There are also no fees charged when you withdraw money using your debit card at your bank’s ATM.
· Fraud Protection
Debit cards also offer fraud protection, but if you only report the incident with 48 hours. Payment processors such as Visa and MasterCard offer this protection.