Mon. Nov 22nd, 2021
credit cards vs debit cards

Credit card vs Debit card

Credit card vs debit card.  Which is better?  I get asked that a lot.  Especially from pros and cons of credit and debit cardspeople who have little to no credit.  Or maybe they have bad credit and are looking for tools to help them overcome their credit problems.

Credit cards should not be confused with debit cards. Although there are similarities, debit cards are very different from credit cards.

I’ve found that debit cards are great tools for people who have set up a budget and really want to stick to it!  They need the power of a Visa or Mastercard.  But they are limited by the amount of money you have in the attached account.

While credit cards can be used to make purchases that you do not have the money for at the moment, and can be used to build or rebuild credit.  But you need to be very careful with your use of credit cards.  If you go overboard in your spending, you can find yourself deep in debt!

Advantages and Disadvantages of Debit Cards

debit card vs credit cardDebit cards came on the financial scene about 15 years ago.  They were great for people with bad credit because they didn’t require a credit check.  They can be issued by your bank or a third party bank and in MOST cases will have a Visa or Mastercard logo on them.

The drawback for many people is that you can’t spend more than what is in your account.  Or the amount you transfer on to the card. So they are perfect for people who want to stick to a budget.

Benefits of using debit cards

    • Debit cards can be used in paying for purchases without bringing cash.  They are incredibly convient in a world where everyone pays for everything via credit card.
    • Your credit score is not a factor in approval.  These days EVERYONE gets a debit card when they have a checking account.
    • Some third party issuerers of debit cards have a credit building program you can PAY a monthly fee to be a part of.  This is beneficial for anyone who needs to build / rebuild credit. These paid programs will generally submit your payment history to at least one of the major credit reporting agencies
    • Debit cards are great ways to send money to friends and family members.

The Drawbacks To Using Debit Cards

  • You can only charge the amount that is available in your account. Once debt card factsyou’ve used up your funds, you won’t be able to use your debit card for charges. You’ll need to deposit funds in your account to start using it again. Unlike credit cards, debit cards do not give you the “charge today-pay later” option.
  • Although this is changing.  Many debit cards don’t offer “rewards” like credit cards do.
  • The debit cards that do offer things like rewards have some hefty fees or high APR attached to them
  • Scams – unfortunately a lot of scam artists will target people with fake claims of owe money, tax problems etc. and they will INSIST that you pay them using a debit card.  The reason they do this is that once the money leaves your account, It’s hard to trace it back to them.  So unlike credit cards that have a built-in feature for you to dispute and get your money back.  With debit cards, once the money is sent.  Its gone.  Don’t fall for these scams!

Advantages and Disadvantages of Credit Cards

rebuild credit with credit cardsA credit card gives its holder the flexibility to charge purchases or expenses on his/her account and pay for them at a later time. Most credit cards provide a grace period of 15-30 days. This period gives the cardholder the chance to pay back charges without incurring the interest rate.

Credit cards vary alot depending on the users credit score.  People with best credit scores can get the best credit cards with low interest rates and great rewards.

Benefits of Credit Cards

  • You can purchase things immediately even if you don’t have the money in your account and pay on the balance in monthly installments
  • There are credit cards for every type of credit.  Thats why they are a good tool for people who are looking to build or rebuild their credit.
  • The main types of credit cards for people with  Good / Fair credit  are unsecured credit cards, cash back credit cards and reward credit cards
  • For people with bad credit or no credit you have unsecured credit cards for bad credit (tend to have low credit limits and high APR), secured credit cards (require a security deposit ) and instant approval cards (mainly catalog cards that don’t do credit checks but will give large lines of credit)
  • Credit cards can be used to build or rebuild credit.  Using the types of credit cards for people with bad credit, you can easily obtain NEW LINES of credit. With good credit / money financial management with debit cardsmanagement you can use these lines to show new lenders that you can now handle your lines of credit.  These cards will help you to improve your credit score but you must be careful!  You must pay them on time and try to keep UNDER 30% utilization.  If you are not careful, you can also DAMAGE your credit!

Many people prefer credit cards over debit cards. But debit cards do have their use.  One of my clients has the Mission Money Debit card.  She uses it as her Christmas savings account.

She set up a  direct deposit from her paycheck into this account and never touches it until October when she starts her Christmas shopping. All year long she uses it as a sort of savings account.   There aren’t any fees assosicated with this account and it has the Visa logo on it.  So now she can buy things online or anywhere Visa is accepted and stay within her budget.


By Elizabeth Roberts

Liz Roberts is a Sr. Credit Analyst with Horizon Funding Group Inc. She has been in the business credit industry for 23 years focusing on bad credit business owners and start up businesses. Her background is in consumer credit and collections prior to joining the Horizon team as a credit analyst and writer.

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