by Homer Dennis
Before now, business transactions were done with physical cash. People were restricted from purchasing items from physical stores with physical cash as their payment method. With this restriction, merchants are patronized by people within their locality. An accurate BIN checker is highly recommended for merchants for advanced fraud prevention.
Nowadays, business activities have improved tremendously. Business transactions are now digitalized. The digitalization of marketing activities has resulted in clients making payments for goods purchased from their couch's comfort. All the business activities in the digitalized business world are made possible due to the introduction of credit cards and debit cards. Since their introduction by banks and financial institutions, most merchants have adopted it as their payment method. The adoption of these payment cards has increased merchant's patronage with customers purchasing items from different parts of the world. One of the Germain questions that demand a concise answer is the difference between the two payment cards. Though they share similarities in their functions, credit cards and debit cards have many differences. Today, I will be telling you the differences between the credit and debit cards and when you should use any of the two payment cards.
The table below summarizes the differences between credit and debit cards.
|Parameters||Credit Card||Debit Card|
|Source of Funds||Funds are borrowed to purchase items.||Funds are deducted from the account of the cardholder.|
|Spending Advantage||You can spend more than your budget on the purchase of goods and services.||You are limited to making a payment with the funds in your account.|
|The Payee of Your Purchase||The issuer of the card pays the merchant for all items purchased by you.||You pay for all items purchased with the funds in your account.|
|Bills||With a credit card, there is a monthly bill or statement for business transactions.||No bill is issued for your business transactions.|
|Charges||Credit cards charges you fees like annual fees, joining fees, bounced check fees, late payment fees, and many more.||The debit cardholders pay PIN regeneration and annual fees.|
|Interest||Interest is paid on all outstanding payments not made before the deadline date.||No interest is charged on debit cards.|
|Limit on Funds Accessed||The credit card has a limit to the funds you can access.||There is no limit to the amount you can access - provided you have funds in the account.|
|Privileges||Depending on the type of credit card, you can access huge privileges like travel, entertainment, dining, retail, and many more.||It has only a few privileges.|
|Lost Card Protection||It has an excellent loss liability protection.||Protection is minimal.|
A credit card is a physical plastic payment card comprised of the card number, CVV, expiry month and year, magnetic stripe, and the issuer's contact information. As a credit cardholder, you can make payment for goods purchased online or physical stores. Banks and financial institutions issue the credit card without having a savings or any other form of account. Hence, your credit card is not linked to your account when issued to you. The credit cards are of two types, namely - secured and unsecured credit cards. The secured credit cards are designed for cardholders that have poor credit history and are striving to build trusted creditworthiness. When you are issued a secured credit card, you can pay for an upfront security deposit. The security deposit serves as collateral anytime you miss the payment of your loan. The unsecured credit card is a type of credit card that requires no security deposit when applying for it. If you are a cardholder that maintains higher credit scores, an unsecured credit card is designed for you.
A debit card is a physical plastic payment card that contains information like the card number, CVV, expiry month and year, magnetic stripe, and the contact details of the issuer. The banks and financial institutions issue the debit card. To become a debit cardholder, you must have opened an account and maintained a substantial amount of funds. Hence, the debit card is linked to your savings or any other form of account you opened with the bank.
Both the credit and debit cards cannot be used without access to funds. Hence, the issuers have provided sources for each type of payment card. The sources are differentiated below.
The credit card is a payment card that is funded on a loan. When a bank or financial institution issues a credit card, all business transactions carried out with the credit card are paid by the card-issuing company. The loans incurred during payment for goods are paid back to your issuer within a specific period.
The debit card is a payment card that is funded by the owner of a bank account. If you opened a savings account with a bank, you would be issued a debit card with the charges debited from your account. As a debit cardholder, the money used for payment with the debit card is funded by you. The debit card is linked to your account. For each transaction carried out with the card, the money is debited from your account. Hence, you must have enough funds in your account before carrying out business transactions.
Credit cards have many advantages that are absent in debit cards. The advantages of credit cards are discussed below.
1. Build Credit History
As a credit cardholder, you can build a good credit history.that will contribute significantly to your financial health.
2. Limitation on Liability
Credit card issuers are guided with a fantastic credit billing act whereby the liability on unauthorized charges is $50. Some credit card issuers have got $0 liability policies when credit cards of their customers are stolen or lost.
3. Earn Rewards
Credit card issuers have rewards cards through which you can earn cash back or rewards when the card is used to purchase items from stores.
4. Emergency Payment
The credit card provides its holders the chances of making emergency payment for items or other needs. The emergency payment is made possible because the cash used is in the form of a loan and not from your account.
1. Moderate Your Spendings
As a debit cardholder, you need to have funds in your account before you can use it to make payment. Since funds must be available before you can pay for anything, your spendings can be checked. This will make your financial health stable.
2. Monitor Your Account
With a debit card, you can monitor the funds in your account. This you do by setting up alerts for your debit card activities.
3. No Payment of Interest
When you are issued a debit card for payment of goods and services, no interest is charged on the card or transaction made with the card.
4. Seamless Withdrawal
Debit cards can be used to make withdrawals in ATMs. You can also get cash backs with your debit cards when you purchase items with it.
1. Easy Accumulation of Debts
Since credit card issuers do not set limits to the amount their holders can spend at each time point, it becomes easier to accumulate debts. This is because you will always be tempted to make payments.
2. Payment of Interest
When you are issued a credit card, you need to pay the loan on the card within a specific period. Peradventure, you cannot pay your loan in full before the billing cycle elapses - the credit card issuer will charge you interest on all purchases made with the card.
3. Payment of Extra Fees
As a credit cardholder, you are most times charged fees. The fees charged by the card issuers include late and return payment, cash advance, foreign transaction fees, and balance transfer.
1. As a debit cardholder, you won't have the chance to build your credit history. With this, your financial health may become worsened.
2. With a debit card, you will be charged fees. The fees charged by the debit card issuer include overdraft fees, out-of-network ATM charges, and charges on PIN usage during payment transactions.
3. As a debit cardholder, you are responsible for fraudulent charges when your card is stolen or lost. However, the Electronic Fund Transfer Act has set restrictions on your responsibility for all unauthorized charges the card is stolen or lost.
4. Some companies do not accept debit cards. This is because they may not be chanced to charge you for damages on their properties where applicable.
As a credit cardholder, you can make payment with your card at all times point. It doesn't matter if you have funds on the card or not. Hence, you will not be stranded because the payment is paid for by the card issuer.
As a debit cardholder, you can only make payment when you have funds in your account. This is because all transactions are funded with the money from your account.
The act of making a payment with credit and debit cards has made business transactions easier and quicker. However, sellers should be careful to prevent payment frauds. One way is to employ a BIN Check Service before actually charging the card.
Today, I have discussed the differences between credit and debit cards. Please read through and get informed about your desired payment cards.
About Homer Dennis
Born and raised in an environmentally conscious family, Homer developed a strong awareness of the impact of human activities on the planet from a young age. This early exposure to eco-friendly practices and sustainability principles inspired her to pursue a career focused on promoting renewable energy and advocating for a more sustainable lifestyle.