What’s the difference between debit and credit cards?

When you reach for your wallet to pay for something, chances are you’re going to use a card to pay. Cash is becoming less prevalent, with over 40% of Americans reporting that they never use cash for typical purchases.

Most of us use payment cards to pay for goods and services — but there are some key differences between the two main types of cards: credit cards and debit cards. This article will explore the main difference between debit and credit cards.

Debit card vs. credit card: The basics 💡

Debit cards and credit cards are both payment cards that are used to pay for goods and services. Typically made of plastic, they both have account numbers (typically 16 digits) as well as a security code, and both can be “swiped” in payment terminals to transmit transaction data. 

Most newer cards also have digital chips, which are inserted into machines and provide a more secure payment process. And some have “contactless” chips, which can simply be tapped against payment terminals to wirelessly transmit data.

Debit cards can also be used to access cash via an ATM. Credit cards can be used for “cash advances” to get cash as well, but these transactions may be subject to additional fees. 

What is the difference between debit and credit cards?

On the surface, credit and debit cards are quite similar in how they work. But the main difference is where the money comes from when you swipe one of these cards.

Debit cards are directly linked to your checking account. If you buy $70 worth of groceries using a debit card, $70 will immediately be taken out of your checking account. And if you don’t have enough in your account to cover the transaction, it could be declined (or you could end up with an overdraft fee — more on this later).

Credit cards are linked to a credit limit, which allows you to borrow money. If you buy $70 worth of groceries using your credit card, your credit card balance will go up by $70, but no money will be taken out of your checking account. You’ll then be asked to pay back the money — usually with interest if you don’t pay your balance in full each month.

In short, a debit card allows you to spend your own money from your bank account, while a credit card allows you to borrow money and pay it back later. Let’s break it down further to explore all the differences between debit and credit cards.

Debit card pros and cons

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Pros:

• Generally no interest or fees (unless you overdraft your account)

• Spending on a debit card won’t put you into debt (while using a credit card could)

• Available to anyone with a bank account (no credit score requirements)

Cons:

• Not possible to borrow money

• Typically don’t earn rewards (but the Greenlight debit card does — Greenlight offers 2% cashback for kids and teens*)

Credit card pros and cons

Pros:

• Can help you build credit if used responsibly

• Provides a flexible way to borrow and repay money

• Can often earn cash back or other rewards points

• Sometimes offer purchase protections like extended warranty coverage

Cons:

• Usually charge interest if you carry a balance (and credit card interest rates are quite high, at over 23%, on average)

• Can negatively affect your credit score, depending on how you use it

• Some cards have annual fees

Debit card details 🏧

A debit card is directly tied to your checking account. You’ll likely get one automatically when you open a checking account — and there’s no need to “apply” specifically for a debit card (unlike a credit card). 

Each transaction you make using a debit card directly affects your bank account balance. If you start with a $100 balance in your checking account and then spend $30 using your debit card, you’ll now have a balance of $70.

If you accidentally spend more than your balance, one of two things can happen:

• The transaction might be declined. This means that your bank stops the transaction in its tracks, and you’ll have to use a different payment method or put some items back.

• You might overdraft your account. This means you can end up with a negative bank account balance, and you’ll need to deposit more funds to cover the difference. (Your bank essentially loans you a small amount of money.) Overdrafts often result in overdraft fees, which are typically around $35. The Greenlight money app for kids and teens does not charge overdraft fees.*

The Greenlight debit card for kids and teens has some unique features to be aware of, as well. Parents and guardians can set parental controls to limit spending in certain categories or at certain merchants. Kids and teens can earn 1% cash back to savings*, helping give a boost towards savings goals. And you can choose a plan with identity protection services, purchase protection, and even phone protection for ultimate peace of mind. Get the Greenlight debit card today.

Debit card interest and fees

Debit cards do not charge interest, since you’re spending your own money (rather than borrowing money to pay back later). But a debit card may have fees.

Most debit cards don’t charge an annual or monthly fee. But some bank accounts charge monthly maintenance fees, often in the range of $5 to $15 per month, with an average of $13.95 per month as of 2023. You need a bank account to have a debit card, so if your bank charges monthly fees, be sure to account for those in your budget. Also, some banks provide ways to avoid some of these fees, for instance by keeping a certain minimum balance on deposit. 

In addition, there may be a fee when you make ATM withdrawals using a debit card, particularly if you use an ATM that’s not owned by your bank or a partner bank. ATM cash withdrawal fees typically average around $4 or $5 per transaction.

It’s always a good idea to shop around, too. For instance, Greenlight starts at $5.99 per month (compared to $13.95 per month, on average, for a typical bank account). Plus, Greenlight has no ATM fees and no hidden fees.*

Debit card rewards

Most debit cards don’t earn any cash back or other rewards. The ones that do have a rewards program sometimes have specific requirements, like making a certain number of debit card transactions per month or having a certain amount of money in a linked savings account.

One card that does offer cash back is the Greenlight debit card for kids and teens. Greenlight members who use their debit cards can earn 1% cash back* on purchases, deposited right into their linked Greenlight savings account. 

Credit card details 💳

A credit card is a form of “revolving credit,” which means it’s a way to borrow and repay money. Revolving means that you can continuously borrow depending on your credit limit, and repay as needed. This makes credit cards a bit more flexible than traditional loans.

To use a credit card, you first need to apply for one and get approved — which is not guaranteed. You’ll submit your personal information, Social Security number, and income into an application, which the credit card issuer will review. They’ll look at your credit history to assess how you’ve repaid debt in the past. If they approve you, you’ll be given a credit limit and mailed a credit card.

The credit limit is the maximum amount of debt you can carry on the credit card at once. For example, let’s say you are given a $1,000 credit limit. That means your balance can’t exceed $1,000 — but your balance will decrease every time you make a payment. 

For instance, say you have a $1,000 limit, and you then spend $300. Your current balance is now $300, and your available credit is $700. But if you then make a $200 payment, your balance will reduce to $100 and your available credit will increase to $900. 

That’s what makes a credit card a form of revolving credit. Each purchase and payment you make affects your available credit (the amount you can borrow) in real time. 

Credit card interest and fees

Usually, credit cards charge interest when you borrow money and “carry a balance” (unless there’s a special introductory rate, but these are limited-time offers). But what does carrying a balance mean? 

First, remember that credit cards let you borrow money. When you make a transaction, your credit card balance increases — but nothing happens to your bank account balance. 

Second, it’s important to understand credit card billing cycles. Billing cycles typically run around 28 to 30 days (about a month). All transactions made during that cycle will be put on that month’s credit card statement (and you’ll see them on your credit card bill).

Third, let’s explore credit card due dates and when interest actually starts kicking in. When you get your credit card statement, you’ll see your “statement balance,” which is the total balance on the card as of the statement closing date. 

You’ll also see a “minimum payment” due. You must pay at least the minimum payment in order to keep your account in good standing — but the minimum payment is quite low (and will result in you paying interest).

If you pay the full statement balance by the due date (typically around 21 days after your statement closing date), you won’t need to pay any interest. But if you pay less than that, you’ll end up “carrying a balance,” and you’ll start paying interest on that amount. 

Credit card interest charges can be quite high — typically 20% to 30% or even more. So, it can be really costly to carry a balance on a credit card. The interest rates you’ll pay depend on the lender as well as your credit rating (better credit typically means lower interest rates).

In addition to interest rates, you may incur fees with your credit card. Some fees to watch for include annual fees, late fees, cash advance fees, and international transaction fees.

Credit card rewards

Many credit cards offer rewards and other perks. Some cards earn cash back, like 2% back on all your purchases (so if you spend $100, you earn $1 in rewards). Others earn airline miles or points that you can use for free or discounted travel.

Not all cards offer rewards. Folks with good credit will typically have access to better rewards cards, as credit card companies are more willing to offer greater perks to borrowers with better credit — and lower risk.

When to use a credit card vs. debit card

There’s no “best” option between debit and credit. In fact, many people will end up using both types of cards. But here are some things to keep in mind.

Debit cards are best for accessing cash at an ATM, as you’ll only pay a small ATM fee (or none at all, if you use your bank’s ATM). But what about purchases and bill payments?

It might make sense to use a debit card if you have poor credit and can’t get approved for a credit card or if you’d prefer not to risk going into debt. 

On the other hand, using a credit card might make sense if you want to earn rewards or if you want to build up your credit score. And of course, credit cards provide the option to borrow money and pay it back over time, which certainly comes in handy (but can be costly). 

Both debit and credit cards can play a role in your personal finances

The main difference between debit and credit is that debit cards spend money directly from your bank account, while credit cards allow you to borrow money to pay back later. Neither is better or worse than the other; and in fact, it may make sense to have and use both at times.

Greenlight offers a debit card for kids and teens as well as tools to help them learn more about personal finances.

Ready to learn about the world of money? Sign up for Greenlight today!

*Greenlight Core families can earn 2% per annum, Greenlight Max families can earn 3% per annum, and Greenlight Infinity families can earn 5% per annum on an average daily savings balance of up to $5,000 per family. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time. **Greenlight Max and Infinity families can earn 1% cash back on spending monthly. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time. ***Requires mobile data or a WiFi connection, and access to sensory and motion data from cell phone to utilize safety features including family location sharing and driving alerts and reports. Messaging and data rates and other terms may apply.

*Greenlight is a financial technology company, not a bank. The Greenlight app facilitates banking services through Community Federal Savings Bank (CFSB), Member FDIC.