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Credit Card vs Debit Card: What's the Difference?

October 21, 2020

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If you only carry cash, adding a debit or credit card (or both) gives you some flexibility. Here are the defining features and key differences between the two common types of cards.

Credit Cards

What Is a Credit Card?

A credit card lets you make purchases with borrowed money and pay it back later. You can borrow the money for free as long as you pay it back in a certain period of time. If you pay late, you pay extra. A credit card is separate from your bank account. 

How Do Credit Cards Work?

If you’re approved for a credit card, the provider will give you a spending limit. This is the maximum amount of money you can spend. Some cards have a low spending limit ($500) and others are much higher ($10,000).

Each month, your card provider will tell you how much you spent during your billing cycle. This is called your statement balance. If you pay your statement balance in full, you won't pay any interest on those purchases.

When you don't pay your entire balance, you'll pay interest on what's left. You'll also still owe on purchases in your next billing cycle. The lowest amount you can pay per month is called your minimum payment. 

Terms to Know

  • Interest Rates (APR) — Your annual percentage rate (APR) is the amount of interest charged when you don't pay your entire statement balance.

  • Annual Fee — Many rewards cards charge an annual fee to be a cardholder.

  • Grace Period — The period of time between the end of your billing cycle and when your next monthly payment is due. During this 21-day period, new purchases do not accrue interest.

  • Rewards — Some credit cards award benefits as you spend money and pay it off. Flight miles, points, and cash back are common reward systems.

How Do You Get a Credit Card?

You need a source of income, credit history, and a Social Security number to apply for your own credit card. You must also be at least 21 years old. Applications will often ask for information about your living situation and expenses.

When you find a card that fits your needs, you can apply online or via mail. Online applications will process quickly, sometimes in a matter of minutes. 

Pros and Cons

Pros of Credit Cards

  • Builds credit history and can boost your credit score

  • Allows you to pay off large purchases over time

  • Can earn rewards like cash back, flight miles, etc.

  • Security and fraud protection

Cons of Credit Cards

  • Easy to accrue high-interest debt if you don’t pay your balance

  • Some cards have annual fees

Debit Cards

What Is a Debit Card?

A debit card links to your checking account at the bank. Unlike a credit card, there’s zero borrowing. You can only spend up to your account balance. It’s your cash in digital form.

How Do Debit Cards Work?

When you buy something with a debit card, the money comes directly out of your checking account. You can also withdraw cash from an ATM with your debit card. Your debit card mirrors your checking account, so it’s possible to overdraft by spending more money than you have available.

How Do You Get a Debit Card?

You can request a free debit card when you apply for a new checking account. For existing accounts, apply through your banking website or in-person. Your card will be mailed to you in a few days.

Pros and Cons

Pros of Debit Cards

  • Impossible to get into debt

  • No credit approval process to get a debit card

  • Access to cash via ATMs

Cons of Debit Cards

  • Doesn’t build credit or help your credit score

  • Overdraft fees when you overspend

Credit and debit cards give you more flexibility as a consumer. Used wisely, they can build credit, provide a reliable way to pay bills on time, earn rewards, and give you the confidence to plan for a large purchase. 

Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of Varo Bank, N.A. Member FDIC (“Bank”).. Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s).
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Kayla Moses

Kayla Moses

Kayla Moses is a CX designer and freelance writer based in Austin, Texas. Her work spans a variety of industries, including personal finance, business, and real estate. See more of her personal projects and experience at her website:

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