Credit cards and debit cards look exactly alike. They have 16-digit numbers, EMV chips, magnetic strips, and expiration dates, and they offer a convenient way to make purchases. This just may be where their similarities end.
What Are the Differences between Debit and Credit Cards?
In the case of credit cards, people are actually borrowing money from the card’s issuer. The issuer sets a limit on the amount of money that it will allow people to withdraw. A debit card is different because when people make purchases, they are using money that they have deposited in their bank accounts. In order to cover the purchases, they must have enough money in their accounts, or else they won’t be able to buy it. Consult an insolvency practitioner such as Hudson Weir if you feel like you mismanage your finances with either.
The Benefits of Using a Credit Card
People Can Develop a Credit History
Everyone has a credit report, and when they use their credit cards, the retailers report this activity to the credit bureaus. According to the experts at SoFi, “An approved application will result in a hard credit pull, which may impact your credit score.” People have positive reports when they pay their credit card bills in full, but negative reports are also included. One example is when someone pays his bill late. Each credit bureau calculates a credit score based upon this history. When someone makes every payment on time and keeps the credit utilization ratio low, the credit score will be in the high territory.
They Have Protection from Fraud
Credit cards provide much more protection for purchases than debit cards. A cardholder must report the card missing in a timely manner. If so, the card issuer will only charge a maximum of $50 for unauthorized purchases.
They Have Protection for Goods that Have Been Damaged
If people purchase goods with credit cards that arrive damaged, they can dispute the charges. They won’t be paying these charges because the amount of the purchase will be immediately deducted from the person’s account.
The Benefits of Using a Debit Card
It’s Impossible to Get into Debt
People cannot make purchases if they don’t have the money in their bank accounts. This prevents them from getting into debt the way that they can get into debt with credit cards.
They Have Protection from Fraud
Some debit cards are offering people the same protections that they offer for their credit cards. However, this is not an issue if people do not report the card missing as soon as possible. Waiting for a longer period of time might result in you paying for unauthorized purchases.
They Do Not Have to Pay an Annual Fee
Debit card issuers do not charge an annual fee for debit cards. People may also make withdrawals from their banks’ ATMs without being charged a fee.
Some credit cards offer much more than letting you make purchases. A credit card makes it easy for customers to save money on purchases they make with their cards. People can use this money to pay down their debts, contribute to their savings accounts or invest.
