Making a purchase with cash is quickly becoming a thing of the past. Because this is the case, it’s beneficial to have non-cash payment options.

However, when it comes to paying with plastic, you may not be aware of the critical differences between credit and debit cards.

At University Credit Union, we believe learning never needs to stop. We always want you to know your options and how different financial tools work so you can achieve your goals. Today we’ll explain the many differences between credit and debit cards. Then you can choose to use the right one for your needs.

How a Debit Card Works

Debit cards are the simpler of the two options. Debit cards are typically tied to a checking account. If you open a checking account, you’ll usually be offered a corresponding debit card. They are an electronic way to access the money in your account. They can generally be used to withdraw cash at an ATM or to make purchases.

Since debit cards are directly tied to your checking account, using them is like paying with cash but paperless. When you make a purchase with your debit card, the money is taken directly out of your account.

The Perks of Debit Cards

Debit cards offer you a convenient way to access your money. They can bring you the convenience of a credit card without the risk of getting into trouble with debt, or missed payments.

Debit cards also typically come with fraud protection. That way, if something goes awry with a payment, unlike with cash, the money may not be permanently gone.

The Cons of Debit Cards

Debit cards will not help you build your credit, so a credit card might be a better option if this is one of your goals.

When using a debit card, if your spending exceeds your balance or dips below some minimum amount, you may be charged an overdraft fee. Some debit cards have daily spending limits that are established by the financial institution.

How a Credit Card Works

Credit cards serve as a line of credit, where you can make purchases by borrowing money, and you pay this borrowed money back at the end of the payment period – usually around one month. If you do not pay your credit card bill in full when it is due, you will have to pay interest on the amount you owe. The interest can vary depending on the credit card you have.

The Perks of Credit Cards

If used responsibly, credit cards can help build your credit. Some cards also allow access to rewards and cash back bonuses that can pay off over time. These rewards can be for hotels, travel, gas, cash, or more.

Like a debit card, using a credit card means your payments have some protection to help keep you safe from fraud.

Credit cards can also help you when emergency expenses occur. If you’re in a pinch, as long as you know you will be able to pay your bill, it can be helpful to have an emergency credit card on hand.

Depending on the rate of your credit card, you may be able to move higher rate credit card balances to a lower rate credit card.

The Cons of Credit Cards

If you don’t pay your credit card payments in full and on time, you can incur some serious interest payments. This situation can quickly get out of hand and build up to quite a lot of credit card debt. Additionally, if you continue to make purchases while carrying a balance, you will incur interest on those new purchases from day one.

If you don’t keep up with your credit card payments, this may also negatively impact your credit score.

Credit Card vs. Debit Cards: The Breakdown

Credit card

Debit Card

You are borrowing money for purchases which you will pay back later.

You are making purchases directly with your own money.

If you don’t pay your balance in full, you will pay interest.

Zero interest – the money comes from your checking account.

There is a grace period before you have to pay back the purchase.

The money immediately comes out of your checking account.

Builds your credit score

May not affect your credit score

Often requires a signature

May require a signature or PIN

You can earn rewards or cash back, depending on the card you choose.

Debit cards typically do not offer any rewards or cash back.


Credit or Debit Card: Choosing the Best Option for You

Are you trying to build credit? Do you want to have a line of credit for an emergency? A credit card can help with that. Do you just need easy access to your checking account? Want to pay your bills online? A debit card is probably sufficient.

However, since debit cards don’t incur fees or harm your credit score, you may decide that having both works for you. Many different types of credit cards exist to fit your lifestyle, helping you build credit and often earning rewards.

For example, University Credit Union offers low APR* credit cards with rewards or cash back for every dollar you spend. If these options appeal to you, a UCU credit card may be the right choice for you.


See Our Credit Cards