It’s no secret that credit and debit cards are used for financial transactions. But what makes them unique? To know that, you should understand the difference between them. To get a credit card, you must maintain a good credit score. You can check your credit score from the Cibil score app.
Credit cards enable you to get money from the bank to complete purchases, which you must repay later. At the same time, debit cards deduct funds directly from your bank account when you make a purchase. There are other big differences between credit and debit cards. This article will explore other major differences between them.
Significant Differences Between Credit Cards and Debit Cards
You must have a good credit score to get a credit card. In comparison, debit cards do not require a credit score. Let’s explore more differences between them in this segment.
Access to Funds:
Debit cards are directly connected to your checking account, allowing you to use your funds without incurring debt. Conversely, credit cards grant you a line of credit, allowing you to make purchases even if you don’t have the funds readily accessible by borrowing money from the credit card issuer. With a debit card, you can solely spend what you have in your account, guaranteeing responsible spending. Credit cards provide flexibility, but you must cautiously manage your expenses to repay the borrowed sum and avoid accumulating interest fees.
Spending Limit:
Debit cards have no credit limit as they are linked directly to the funds in your checking account. You can solely utilize the current amount in your account, guaranteeing that you do not take out any loans or surpass your balance. Conversely, credit cards come with a predetermined credit limit. They allow you to borrow money up to a specified limit set by the credit card issuer. It grants you the freedom to make purchases even if you do not possess the funds at hand, but you must be cautious to remain within the credit limit to evade any extra fees or penalties.
Interest Charges:
Since you use your funds directly from your checking account, debit cards do not have interest charges. Whatever amount you have in your account can be spent without any extra expenses. Conversely, credit cards include interest charges if you maintain a balance past the grace period.
Suppose you don’t fully pay off your credit card balance by the due date. In that case, the remaining amount will accumulate interest, and you should pay additional fees for borrowing money from the credit card company. It is crucial to effectively handle your credit card payments to prevent the accumulation of debt and the payment of unnecessary interest charges.
Impact on Credit Score:
A debit card does not impact your credit score since it is not a borrowing or credit-related action. It merely grants you access and lets you spend your funds. Conversely, using a credit card impacts your credit score by borrowing funds.
Acting responsibly with your credit card, such as ensuring timely payments and effectively managing your credit usage, can contribute to establishing a good credit history. But, if you make delayed payments or an excessive amount of debt can have a negative impact on your credit score. Using credit cards responsibly and proficiently managing your finances is crucial to uphold a solid credit position.
Rewards and Offers:
Certain debit cards provide rewards, although they are generally less generous when compared to credit cards. Rewards programs for debit cards often offer lower cash-back rewards, typically around 1%, on purchases up to a certain limit. Debit cards are well-suited for everyday expenses such as groceries or fuel, as you can use your funds and avoid interest fees. In contrast, credit cards provide more rewards and offers compared to debit cards, and the rewards tend to be more valuable. Credit card rewards can be cash-back, points, or miles. Some credit cards offer higher cash-back rates ranging from 2% to 6% in specific spending categories. Credit cards are especially advantageous for larger purchases like travel or electronics, as you can earn rewards and have a longer period to settle the balance.
Conclusion
In conclusion, debit and credit cards are primary methods of making financial transactions without using cash. You can use debit cards for regular expenditures such as groceries or fuel. In contrast, credit cards can be used for both daily expenses and costly purchases. You don’t need to maintain a credit score to get a debit card. But, you must maintain a credit score of at least 650 for credit cards. You can check your credit score using the Cibil Score App. Therefore, understand the differences between both card types and choose whether you need a credit or debit card.