Difference Between Credit Cards and Debit Cards: Which Is More Useful?

Difference between credit cards and debit cards: Which is more useful?

Even though they look identical in all respects, there is a lot of difference between credit cards and debit cards. The fundamental working principles of both these financial tools are the opposite of one another.

If you are planning on getting either of these cards for yourself, it is important to understand the key differences between them. This will help you use their features to your advantage in an efficient manner.

Let’s get started with the basics.

What is a credit card?

A credit card is a financial tool, issued by a financial institution, such as a bank or a lender. There is no necessity to hold an account in the same bank to obtain a credit card. As long as you maintain your credit score, and meet all the other credit card eligibility criteria, you are good to go. There are different types of credit cards available in the market today such as charge cards, balance transfer cards, premium cards, and more.

What is a debit card?

A debit card is another type of financial instrument issued to you at the time of opening a savings or current account in any bank. You can use your debit card to make both online and offline payments and to withdraw cash from the ATM. There are no specific eligibility criteria that you must meet in order to obtain a debit card. All you need to do is open a bank account. Like credit cards, debit cards are of different kinds, such as prepaid debit cards, standard debit cards, and electronic balance transfers.

So, what is the difference between a credit card and a debit card?

The major difference between credit cards and debit cards is as follows:

Eligibility

When you open a bank account, you automatically become eligible for a debit card. The limit on your debit card is your account balance i.e., the amount of money that you hold in your account. However, to obtain a credit card, you need to meet the credit card eligibility criteria. For example, if you want to apply for the Bajaj Finserv RBL Bank SuperCard, you must have a regular source of income, you must be 21-70 years of age, your credit score must be at least 750, etc.

Payment

For all the debit card purchases, the amount is deducted from the owner’s bank account. On the other hand, in the case of credit card purchases, the credit card issuer is responsible for making the payments. Think of the issuer as a liaison between the customer and the merchant. It is a type of loan that the credit card holder takes from the issuer that must be repaid within a certain period.

Credit period

Credit cards offer a grace or credit period of 45 days within which you can pay your outstanding dues along with a certain percentage of the due as a penalty. Since, in the case of debit cards, the amount is directly deducted from your bank account and you cannot spend more than what’s present in your account, there is no question of a credit or grace period.

Limit

In a way both credit cards and debit cards have limits. The limit in the case of debit cards is the amount of money present in your bank account. Whereas in the case of credit cards, your credit limit is capped at a certain point. If your expenses extend beyond these set limits, you are charged with an over-limit penalty. Your credit limit, however, is automatically reset every time you clear your dues. It is important to note here that paying your credit card bills on time can play a vital role in extending your credit limit and earning several other exclusive benefits.

Penalty

Now, in the case of debit cards, there are no penalties involved as you simply cannot spend more than what you have in your account.

However, when it comes to credit cards, you can end up getting penalized for going over your credit limit, or for not paying your dues in time. Avoiding penalties is highly crucial for maintaining a good CIBIL score which can, in turn, affect your ability in availing yourself of financial assistance in the form of loans in the future.

Access

Debit cardholders get direct access to their account. However, this is not the case with credit cardholders. The credit card issuer makes payments to various merchants on your behalf that you must repay within the prescribed due dates in order to keep using your credit facilities without any hiccups.

Which one to choose?

Both credit and debit cards have their pros and cons and choosing one can be a huge dilemma. The only way to make the right choice for yourself is by understanding your specific needs and analyzing the difference between a credit card and a debit card vis-à-vis your needs.

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