What are the differences between a credit card and a debit card?

A debit card can be used at a retailer in a much the same manner as how a credit card is used.  However, there is a key difference between debit cards and credit cards. A debit card is issued by your bank as a means for you to conveniently access your savings or checking account.  When you use a debit card you are using the funds available in your savings or checking account to make a payment to the retailer. You can use your debit card only to the extent to which there are funds available in your account.  There is no line of credit involved in using a debit card. As it is linked to your bank’s savings or checking account, it is obvious that a debit card can be issued to you only by the bank with which you have a savings or checking account.  

A credit card on the other hands provides you with a line of credit (better known as the “credit limit”) to make purchases.  You do not need to have these funds available with you in your savings or checking account to make a purchase. Since credit cards are not linked to your savings or checking account they can issued to you by any bank irrespective of whether you have a banking relationship with them.  As you are not limited to only banks where you have an account, you can have multiple credit cards issued to you by various banks. In fact, in many developed economies the average credit cards per person is more than one and frequently 2-3 unlike debit cards.

In addition to the line of credit available, one of the main benefits of credit cards over debit cards is the opportunity for customers to earn reward points and cash back based on spends made on the credit card.  This allow customers to use credit cards to gain valuable rewards while going about their usual spending. However, if customers do not pay the total balances due on their credit card each month, then the interest levied on the outstanding balance can well exceed the rewards earned.

Debit cards have the advantage of course that you cannot spend more than what you can afford since you are only spending the money that is already available to you in your account.  This is viewed as a significant advantage for people who find it difficult to manage the urge to spend more than they can afford by using their credit card.

Debit cards and credit cards have similar levels of risk if they are lost or stolen and misused.  In both cases you will need to contact your bank as soon as you can to inform them of the theft or misuse.  Based on this information they will have the card blocked hence preventing any further misuse. Most banks have a specific length of time by which you need to report the card stolen or lost. Both debit cards and credit cards can be setup so you receive emails or SMS messages every time the card is used.  This can prove to be critical in identifying any misuse.