Credit Card vs Debit Card

by | Oct 25, 2022

Although they look similar there are some important differences between credit cards and debit cards that you should be aware of. This understanding will better prepare you to mitigate risk of fraud while also empowering you to improve your credit score and maximize benefits more efficiently. Generally, it is better to use a credit card for purchases rather than a debit card, as long as you are able to pay off the balance in full. 

Credit card basics 

Credit cards allow you to make purchases and then pay back the balance at a later date. Essentially, the credit card company is loaning you the money to complete the purchase. If you do not pay back the full balance each month you will be charged interest for the balance remaining on the credit card account. Interest charges can reach higher than 20% so you should be careful. 

How much credit limit the credit card company will approve for you will depend on various factors including your credit score, income, and unpaid debt balances. Regularly making purchases with credit cards while consistently paying off the full balance can enhance your credit score. On the other hand, try not to apply for too many credit cards since this could negatively affect your credit history. 

Debit card basics 

Rather than making purchases on credit as you would with a credit card, when purchasing with a debit card you are paying directly with an existing cash balance in your checking account. However, if you do not have sufficient funds to cover your purchases your bank will charge you fees. Your debit card can also be used to withdraw cash from an ATM. 

Disputed transactions and fraudulent activity 

Credit cards tend to have advantages over debit cards when it comes to dealing with disputed transactions and fraudulent activity. This is the primary reason to use your credit card instead of debit card for your purchases. Since credit cards are not directly connected to your checking account you will still have access to the funds in your account while the fraud investigation is being conducted. On the other hand, debit cards will take the funds out of your checking account, and you will not have access to these funds until the investigation is finalized. 

Most credit cards have zero liability protection which means you are not held responsible for fraudulent activities that are promptly reported to the credit card company. Debit cards do not have this type of protection which means you may still be liable for a portion or all of the charges from fraudulent activity. Also, with debit cards you should be aware that fraudulent ATM withdrawals are difficult to prove and usually are not reimbursed. Do not share or write down your PIN. 

Rewards programs 

Credit cards often offer you a rewards program which could include cash back, travel credits and more. Debit cards, on the other hand, usually do not offer these types of reward programs, and if they do they usually are not competitive with offers from credit cards. 

When shopping around for a credit card with rewards programs you should take into consideration the annual fees. Low annual fees or no annual fees may make the rewards programs worth more for you. If you wish to consider a card that does have an annual fee, review the rewards program in detail to ensure that you are getting your money’s worth.  

When not to use credit card 

For the most part, it is preferable to use your credit card to make purchases in order to mitigate fraud risk,  build your credit history, and obtain rewards program benefits. However, there are exceptions to this rule. You should not do this if you do not think you will be able to pay off the full balance which would result in high interest charges. Also, if a merchant offers a significant discount for using cash it may be worth it to go to the bank or ATM and withdraw cash to make the purchase. 


It is best to use credit cards for as many purchases as possible to mitigate fraud risk, take advantage of rewards programs, and build credit history. Be judicious and take into consideration your ability to repay the balance and whether or not a cash discount is offered. Your debit card should only be used to make ATM withdrawals as much as possible. Regardless of which card you use, be sure to regularly monitor your spending and report any fraudulent activity immediately.


*This content is intended for educational purposes only.  It is not meant to be all inclusive of all the benefits and risks of each product discussed.  Please contact your financial advisor for more informationPlease see the Important Disclosure link below.