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Credit vs. Debit: What is the difference?
The Petal Team

When placing credit and debit cards side-by-side, the differences can be hard to spot. They both identify themselves with a unique and lengthy number, hold a three-digit security code, and are pretty easy to forget at a bar… we’ve all been there, don’t worry. 🙃

The difference lies in how they interact with you, your bank account, and your credit score. If you’re still only using a debit card for everyday expenses (yes, even that 2AM pizza run), you may be missing out on some of the long term benefits of a credit card.

But before we get into that, let’s make sure we’re all on the same page. 👇

What is a debit card?

A debit card offers you the convenience of spending the money you have in your bank account without having to carry around wads of cash in your wallet. 💰

Every swipe (or dipped chip) of a debit card deducts money directly from your checking account to pay for the purchase. And as your account runs out of funds, so does your card.


What is a credit card?

A credit card allows you to use borrowed funds to pay for goods and services. These funds are issued by a lender, and each cardholder is given a predetermined amount of money they’re allowed to borrow per credit cycle, known as a credit line.

What makes credit cards so useful is that you can get a credit line greater than the amount of money held in your bank account, allowing you to buy things and pay for them later. Of course, credit cards are issued under the impression that you will pay back the amount you spend, or a portion of that amount, once a month. If you choose not to pay back the entire amount, the lender will charge you interest – which you can think of as a convenience fee for lending you the money for more than one cycle.

So... Why credit?

Borrowing money and paying it back later can be useful, but perhaps the most valuable reason  is the fact that credit cards can help you build up your credit score. If you ever plan to rent an apartment, buy a car, start a company, own a home, or *gasp* leave the family cell plan, a good credit score is something you should consider investing in.

Many of these big life transitions involve someone (or multiple “someones”) looking 👀 at your credit score. A credit score is a number that is calculated based on your credit history – otherwise known as your official record of borrowing money and paying it back… in a timely manner. And the higher your credit score, the more likely you are to qualify for better rates, rewards products, and access to additional financing.

Credit vs. Debit: Payments

Let’s revisit something – credit cards allow you to buy things even if you don’t have the money in your bank account, while debit cards only allow you to spend money you currently have.

Take this example:

Congrats! You got a new job and start in two weeks! Exciting, right? Except you have to move to another state, find an apartment, sign a lease, pay for that apartment’s security deposit, fill it with furniture, appliances, and a long list of other last-minute additions you’ll forget to remember until the day of.

Don’t get carried away though – it’s important to note that you will accrue interest charges if you don’t pay your credit card bill in full on time, which can lead to unnecessary debt. But as long as you keep track of what you owe with each statement, credit cards can act as your personal savior in times of temporary financial burden.

"A credit card will help you buy these things before your first paycheck hits, while a debit card will only allow you to purchase what you can pay for in that exact moment."

Credit vs. Debit: Disputes

Ever order something online and receive it damaged? Or worse yet, not at all? It’s a less-than stellar experience. But if this purchase was made with a credit card, your odds of fixing the problem are greater than if purchased with something else.

Credit cards allow you to legally dispute transactions without tying your own money up in the process. Once you start a credit card dispute, you won’t be required to pay for the charges until the dispute is over.  When purchased with a debit card, on the other hand, the money has already been withdrawn from your account. While disputing a debit card transaction can be done successfully, there are less protections around it than with a credit card.

TL; DR

1)  Credit cards provide strong features that debit cards cannot, such as better protection when disputing transactions. Credit cards may also provide financial coverage in an emergency, while debit cards can only cover expenses based on what you currently have in the bank.

2)  On-time credit card payments can go toward building your credit score, while debit card payments won’t. And a good credit score can save you a lot of money over time.

3)  Life’s biggest milestones often require you to have a credit score – and a solid one at that. Learn how you can start building one with Petal: www.petalcard.com.