Difference Between Debit Cards And Credit Cards

Credit and Debit cards are similar to each other in terms of usage. Where you can use a Credit card, a Debit card can also be used. The difference between the two lies in the functioning and the way bills are paid.

Every time you use a credit card, you actually are borrowing money from the credit card company. The company pays the billed amount to the vendor and, in turn, you pay the money back to the company. By signing up for a credit card, you agree to pay back the money that you borrowed, in addition to any interest drawn on the amount. The maximum limit of expenditure is an upper limit specified by the credit card company. It depends from card to card.

In a debit card, a bank balance has to be maintained. No money is borrowed; the money is directly pulled out from your account. The merchant establishment will have a debit terminal which is in fact similar to a credit card terminal. When you give your card to make the payment, the card will be swiped. The moment it is done, an electronic message is sent to the bank which checks to see if the customer has that much money in the account. If yes, the amount is debited (taken) from the customer's account and credited (added) to the merchant's account simultaneously. All this is achieved in seconds. The maximum limit of expenditure depends upon the amount in your bank balance.

The advantage of a debit card lies in the fact that you don't have to pay interest on the transactions you make, but still have the flexibility and power the credit card offers. But Debit cards do have some pitfalls. Because neither a PIN number nor a photo identity is required for usage, it gives instant access to your hard earned money and in case of a fraud your entire bank balance could be jeopardized. Therefore it has to be used extremely carefully. Another pitfall for many debit card consumers is not keeping up with their debit transactions; - you may end up trying to spend money that you don't have!

Credit cards are helpful for consumers seeking to establish or reestablish an attractive credit history. Responsible credit card usage can improve one's credit rating, which will improve your chances of obtaining favorable credit terms (low interest rates, low fees, etc.) for automobile loans, mortgages and personal loans. This option is not available with debit cards.

Which card works best for you depend on your bank balance, debt history, and work requirements and how responsible you are with your money!