Credit and debit cards are payment cards that allow you to perform various transactions without visiting a bank. You can get either of them from a bank or credit union under certain conditions that we will see shortly. It is important to note that you can use both cards online or in physical stores. But what is the difference between a credit card and a debit card? In this article, you will learn how the two are different.
Payment cards are essential since they help you carry large amounts of money you could have risked carrying in your briefcase. Since debit cards link to checking accounts and sometimes savings accounts, they allow you to access thousands of dollars on the go. No one will know that you have much money since they cannot see them. All they can see is your debit card, and thus your funds are safe this way.
Nowadays, many merchants prefer electronic payments and not cash due to the insecurities accompanying cash payments. When you carry a credit or debit with you, you will be able to use the card in any way you feel like. You can withdraw money at an ATM if you are in a place where you cannot use cash. Above all, you can get cashback from some card issuers as a reward.
How do I get a credit card?
Getting a credit card may not be that easy, especially if applying for an unsecured credit card. It requires credit scores resulting from your previous credit card and loan repayments in the past. Unsecured credit cards are suitable for bad credit, while others are for good credit scores. Bad credit cards are for poor credit scores and attract high-interest rates compared to credit cards for good credit.
If you don’t have any credit history, you can get a secured credit card. The card requires you to deposit a certain amount of money in your account to get it. The more you deposit, the more your limit. You can be approved for a credit card with no credit history whatsoever with a secured credit card. Your deposit is the security. If you cannot repay the credit card loan, your issuer uses the deposit to repay your loan.
However, if you use it well, you graduate with an unsecured credit card with high limits and a low-interest rate. Your deposit then becomes available for use. To apply for one, you must check your credit scores from the credit bureaus at a fee or from bodies such as CreditWise and Credit Karma for free.
You then search online to see the credit cards that accept your scores plus their terms and conditions. If you have no credit history, you only need to check the secured ones with better terms. You need to check those with cashback, low-interest rates, and fewer fees. After applying, you get the card and activate it for use. Remember that you should be at least 18 years old.
How to get a debit card
Getting a debit card is not difficult, especially if you are not in the Chexsystems. You need to apply for a checking account from our bank of choice, and you are good to go. Some savings accounts also offer debit cards but with limitations. And by the way, payment cards allow you to transfer funds between each other. For example, one can transfer money from a credit card to a debit card and vice versa.
You first start applying for a checking account to get a debit card. In the process, you then tick that you need a debit card. You can also request a debit card later on. Again, you need to have the card delivered to the physical address you provide and activate it upon receiving it.
How do credit cards work?
The cards operate by borrowing money from your card issuer. Whether secured or unsecured, all are borrowing tools and attract interest. When you get the card and borrow funds, the borrowed money starts accruing interest. The cards have varying interest rates depending on your credit scores, or the deposit amount (for secured ones)
You can purchase goods and services online using a credit card. Only you need to provide the card number, the CVV, and the expiration date. You can also pay at the register at physical stores. After every spending cycle, you pay what you have spent to borrow again. As I said, you have to pay with interest. Therefore, the total amount to pay equals the borrowed amount plus the interest which is calculated as a percentage of the borrowed amount.
Credit card issuers report your card’s usage, including how you use the card and the repayment patterns to the credit bureaus. The bureaus then combine various pieces of information to calculate your credit scores and your credit report. The better your card usage, the more credit scores you gain.
How do debit cards operate?
Debit cards allow you to access funds in your checking account. Once the funds are exhausted, the card becomes useless. You have to recharge your account again to use the card. Therefore, they connect to your balance.
Most issuers send a confirmation code to your phone to authorize a transaction when making payments. Again, most issuers allow you to manage your account online. You can do so via a banking app to see your balance, transaction history, and your statement.
What can you do with a debit or credit card?
There are various activities that you can do with the two cards. They include the following.
i) Withdraw money at an ATM
Both debit and credit cards allow you to withdraw money at an ATM. However, withdrawing money using a credit card costs a lot because that is an overdraft. Therefore, it is not good to use a credit card to withdraw funds at an ATM.
ii) Buy goods and services
You can purchase goods and services using either of the cards online and at physical stores. You can earn cashback and other rewards from any of them when you shop at specific places.
iii) Send it to a bank account
Credit and debit cards allow you to transfer money to a bank account. However, just like it is when you withdraw money at an ATM, you pay many fees when you use credit cards to withdraw money to a bank account.
What Is the difference between credit and debit cards?
Now back to the day’s schedule where we wanted to see how debit cards are different from credit cards. The following are the main differences.
|Credit cards||Debit cards|
|Require credit scores to apply (unsecured)||Just need you to have a checking account|
|Have borrowing limit||Allows you to use whatever is in your account|
|Repay with interest||Nothing to pay at the end of the month|
|Issuers reports to credit bureaus||Do not report usage to credit bureaus|
How are credit and debit cards similar?
Despite being a bit different from each other, there are some ways the two are similar. For instance, debit card issuers approve an application instantly. Similarly, you can get credit cards for bad credit with instant approval and no deposit since there is no need to make a hard inquiry as you already have bad credit.
Moreover, both cards allow you to pay for goods and services either online or at a physical store. Again, you can manage both cards online using an online banking app. Additionally, you can withdraw money at an ATM using your credit or debit card’s PIN.
Lastly, both cards have card numbers, CVV, and security codes. They are the details that you use when making an online payment. Also, both are plastic in nature.
How do you transfer funds from a credit card to a bank account?
Earlier, I mentioned that you could transfer funds from a credit card to a bank account. There are various ways you can carry out the process. They include the following.
a) Transfer at an ATM
You can withdraw money at an ATM, write a deposit slip of the amount you want to deposit, put it together with the money in an envelope, and push it through the deposit slot.
b) Transfer over the counter
You can quickly move funds from your credit card to a bank account over the counter. First, you have the cashier withdraw the funds from your card, then deposit it in the bank.
c) Request a convenience check
It is possible to get a convenience check from your credit card issuer, then deposit the check in your bank account. The checks work like regular checks.
Credit and debit cards are payment cards that allow you to purchase goods and services online. You can get either of them in a credit union or a bank. Credit and debit cards allow you to buy goods and services online, withdraw money at an ATM, and withdraw to a bank account. Credit cards allow one to borrow money from their issuer, while debit cards allow you to spend your checking account balance.