Debit and Credit Cards

Debit cards offer the convenience of a credit card but work differently. Debit cards draw money directly from your checking account when you make the purchase. They do this by placing a hold on the amount of the purchase. Then the merchant sends in the transaction to their bank, and it is transferred to the merchant’s account. It can take a few days for this to happen, and the hold may drop off before the transaction goes through.

You will have a personal identification number (PIN) to use with your debit card at stores or ATMs. However, you can also use your debit card without a PIN at most merchants. You will sign the receipt like you would with a credit card. Below are some other facts regarding debit cards.

• You won’t pay interest on your purchases.
• Your credit history will be unaffected by debit card spending.
• Paying with debit will take the money from your account pretty much immediately.

How Do Debit Cards Work?

Your debit card is basically like a plastic check: When you make a purchase, it takes the money directly out of your bank account. So, if you try to spend 500 but only have 250 in your account, your transaction will be declined.

Because the money is taken from your account as soon as you swipe, you won’t get a bill and you won’t pay interest. You might, however, face overdraft fees if you spend more money than is in your account.

Debit cards also work as ATM cards, allowing you to take cash directly out of your bank account.

Credit Card

A credit card is a card that allows you to borrow money against a line of credit, otherwise known as the card’s credit limit. You use the card to make basic transactions, which are reflected on your bill; the bank pays the merchant, and later, when you receive your bill, you pay the bank.

You will be charged interest on your purchases. To avoid paying interest, don’t carry a balance over from month to month. Credit cards have high-interest rates, and your credit card balance and payment history can affect your credit score.

Below are other facts about credit cards:

• The bank decides your credit limit based on your credit history.
• Generally, you no longer have to sign for in-person credit card purchases.
• You will owe interest on your purchases if not paid off in 30 days.

How Do Credit Cards Work?

Your credit card, unlike a debit card, is like a loan: When you open a credit card, you’re approved for a certain line of credit.

Also known as a credit limit, a line of credit is how much you can spend before your card is “maxed out” and can no longer be used for purchases. Your credit limit is based on your credit history and income; the stronger those are, the more the financial institution trusts you and the higher your credit limit will be.

Each month, you’ll get a bill for the amount you spent. Though you’re only required to cover the minimum payment (and not the whole balance) by the due date, you’ll pay interest on whatever amount remains. Because credit card interest rates are usually very high, we recommend paying your bill in full each month to avoid interest fees completely.