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Published April 25, 2023
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4 minutes

Credit Cards vs. Debit Cards: Differences Explained

A debit card spends money that's in your bank account, while a credit card spends borrowed money, up to a limit.

If you’re a little fuzzy on the differences between a credit card and a debit card, read on. We’ll cover the basics, as well as when to choose one type of card over the other.

What’s the difference between a credit card and a debit card?

A debit card allows you to make purchases by taking the money directly from your bank account. 

A credit card allows you to make purchases using borrowed money, which you must pay back on a monthly basis. If you don’t pay the balance in full at the end of the month, you’ll likely be charged interest on the remaining balance.

Debit cards are often automatically issued by financial institutions when you open a chequing account. To get a credit card, you typically complete an application, and approval is not guaranteed. You don’t have to have a bank account with a particular financial institution to apply for one of its credit cards. 

Debit card vs. credit card: Overview

Spending limits

Both types of cards have limits on how much you can spend. 

Debit cards typically have a maximum daily withdrawal amount, and you can only spend money that’s actually in the account. If you spend more than what’s in the account, you may be charged an overdraft fee

Credit cards have a maximum balance, or credit limit, which you can spend however you like. If you buy something that pushes you over the limit, the purchase will be declined, or you may be charged an overlimit fee. 

Annual fee

You generally don’t have to pay an annual fee for a debit card, as it is offered as a feature of your bank account. However, your bank may charge a fee when you use your debit card for certain ATM withdrawals, or if you exceed monthly debit limits.

In contrast, some credit cards have an annual fee, up to several hundred dollars. Cards that charge annual fees typically have perks or rewards programs that most debit cards don’t. You can get free credit cards, but the perks may be less impressive than with fee-based cards. 

Building credit

A debit card won’t help you build your credit as it uses cash, but a credit card can. When you use a credit card, the issuer reports your payment history to the credit bureaus. Your ability to borrow and repay the line of credit responsibly shows lenders that you’re a safe bet.

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Benefits of using a credit card vs. debit card

It’s important to learn when to use each type of card in your wallet. 

  • If you struggle to manage your finances and are concerned about debt, a debit card or prepaid card might be the best option. That way, there’s less danger of spending more than you can actually afford to pay, and you won’t face high interest charges or fees. 
  • If you want to withdraw cash, a debit card is the better choice, so long as you have ample funds in your account. Certain ATMs are free to use with a debit card, giving you easy access to your money. You’re typically charged very high interest when you withdraw cash from an ATM using a credit card, and it starts accumulating immediately. 
  • If you’re trying to build your credit and are reasonably good at keeping on top of your payments, then consider getting a credit card. 
  • If you want to make a large purchase and pay it off over several months (interest free), you can take advantage of a card’s introductory offer, such as 0% APR for 12 months. 
  • If you want to earn rewards on your everyday spending, using a credit card that offers points or cash back on groceries, gas or recurring bill payments might be a good choice.

Nerdy tip: When you apply for a credit card, the issuer typically performs a hard inquiry on your credit. Multiple hard inquiries can negatively impact your score, so be mindful of how many cards you apply for at one time.

» MORE: Charge card vs. credit card: What’s the difference?

Frequently asked questions about credit cards vs. debit cards

Which type of card is better for accessing cash?

Debit cards are your best bet for getting cash. You can withdraw cash from an ATM using a credit, but it’s best to save that option for emergencies: You’ll be charged a high interest rate and there is no grace period, so interest starts accumulating right away.

Which type of card is safer?

Both debit and credit cards have unique PINs, which help prevent someone else using the card if it were stolen. But the system is not flawless. It’s up to you to use both types of cards responsibly, to avoid spending more than you can afford, and to protect yourself from identity theft. If either card is lost or stolen, contact your financial institution immediately.

DIVE EVEN DEEPER

What Is a Debit Card and How Does It Work?

What Is a Debit Card and How Does It Work?

A debit card is a payment card that lets you make secure and easy purchases online and in-person by drawing money directly from your chequing account.

Can I Pay Rent With a Credit Card?

Can I Pay Rent With a Credit Card?

In short, yes — for a fee. Make sure the convenience is worth the potential cost to your wallet or your credit score.

Should You Pay Bills With a Credit Card?

Should You Pay Bills With a Credit Card?

Using a credit card to pay bills can earn you points and cash back — just make sure to pay your bill in full and watch your credit utilization ratio.

How Does a Line of Credit Compare to a Credit Card?

How Does a Line of Credit Compare to a Credit Card?

Lines of credit and credit cards are both types of revolving credit, but key differences include how and when funds are accessed.

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