Understanding the Difference Between Credit Cards and Debit Cards

Credit and Debit Cards are used for making purchases and even meeting financial emergencies. If you’re wondering about the difference between Credit Cards and Debit Cards, you’re at the right place. Understand their features and know their benefits to make informed financial decisions. 

Whether you want a free Credit Card or want to apply for a Debit Card, this guide will weigh in on the  Credit Cards vs Debit Cards debate and highlight their characteristics. 

What is a Debit Card?

A Debit Card is a payment card that allows you to access and use the funds available in your bank account for online and offline purchases, or cash withdrawals at ATMs. When you use a Debit Card, the transaction amount is immediately deducted from your bank balance. 

The major purpose of a Debit Card is to provide you with a convenient and secure way to pay for your day-to-day expenses since you can only spend the money you have in your bank account.

Key Features of Debit Cards

  • They provide easy access to your funds without the need to carry cash. 
  • They are widely accepted for purchases at various retailers, whether online, offline, or internationally. 
  • Debit Cards come with added functions such as checking account balances and transaction history. 
  • They can also be used for contactless payments and protect against unauthorised card use.

What is a Credit Card?

Credit Cards allow you to make purchases on credit. When you use it, you are essentially borrowing money from the Credit Card issuer, with a commitment to repay it later.

Credit Cards come with a predetermined credit limit, representing the maximum amount you can spend on the card. Each purchase made using a Credit Card adds to your outstanding balance, forming a line of credit you must settle within the specified payment period.

Key Features of Credit Cards

  • Make for a flexible and convenient payment option.
  • Enable you to make purchases when you don’t have money.
  • Offer a grace period during which you can repay the borrowed amount without incurring interest charges. 
  • Provide security against fraudulent transactions.
  • Credit Cards come with reward programmes such as cashback, reward points, and discounts on purchases.

Differences between Credit Cards and Debit Cards

Now that we’ve explored each card’s features and benefits, let’s understand the key differences between the two.

  • Source of Funds

One major distinction between Credit Cards and Debit Cards is the source of funds. Debit Cards draw money directly from your bank account, utilising your available balance. But Credit Cards provide a line of credit that allows you to spend money you don’t have by borrowing money from the Credit Card issuer.

  • Borrowing and Repayment

Debit Card transactions involve immediate deduction of funds from your account, while Credit Card transactions accumulate as an outstanding balance that requires repayment within a specific period.

  • Credit Limit

Debit Cards have no pre-set credit limit since they rely on the available funds in your account. On the other hand, Credit Cards have a predetermined credit limit that determines your maximum spending capacity.

  • Interest and Fees

Debit Card issuers do not apply interest or charges since you are using your own funds. As for Credit Cards, unless you’re using a free Credit Card such as a 0% APR Credit Card, you’ll have to pay interest charges on the outstanding balance: if not fully paid by the due date. Credit Cards may also have annual fees and other charges associated with their usage. However, some Credit Card issuers don’t charge annual renewal or joining fees. You can opt for them if you want to avoid paying any fees.

  • Building Credit History

Unlike Debit Cards, responsible use of Credit Cards allows you to build a credit history. Your card’s activity, such as timely payments and responsible credit utilisation, is reported to credit bureaus. This information contributes to your credit score, which plays a crucial role in future credit applications and financial opportunities.


Understanding the difference between Credit Cards and Debit Cards can help you make sound financial decisions. Debit Cards provide convenient access to your own funds, while Credit Cards offer flexibility, borrowing capabilities, and the opportunity to build a credit history. 

Whether you settle for a Credit or Debit Card, their responsible usage is critical to maintaining financial stability and maximising their advantages. Thus, make timely payments, stay within your credit limit, and avoid unnecessary debt. Furthermore, monitor your Credit Card statements regularly, track your expenses, and take advantage of the benefits and rewards offered by your card.