Credit card vs. debit card: What’s the difference?

There are stark differences between credit cards and debit cards, even though they may look very similar. 

Both are 3.375 inches wide by 2.125 inches high, typically have 16-digit card numbers and an expiration date, magnetic strip and an EMV chip, but credit cards allow you to borrow funds and debit cards draw money directly from your bank account. Read on for more information about the differences between the two card types.

Bank of America® Customized Cash Rewards credit card

BLUEPRINT RATING

Our ratings are based on specific use cases for each card. We compared this card to others in the same category and developed our rankings based on this criteria, along with our editorial input. Note that although we chose this card as the best in its category, the right card for you will depend on your own financial circumstances.

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On Bank of America’s Secure Website

BLUEPRINT RATING

Our ratings are based on specific use cases for each card. We compared this card to others in the same category and developed our rankings based on this criteria, along with our editorial input. Note that although we chose this card as the best in its category, the right card for you will depend on your own financial circumstances.

Welcome Bonus

$200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening.

$200

Annual Fee

$0

Regular APR

18.24% – 28.24% Variable APR on purchases and balance transfers

Credit Score

Credit Score ranges are based on FICO® credit scoring. This is just one scoring method and a credit card issuer may use another method when considering your application. These are provided as guidelines only and approval is not guaranteed.

(700 – 749) Good, Excellent

Earn 3% cash back in the category of your choice, automatic 2% at grocery stores and wholesale clubs (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases) and unlimited 1% on all other purchases.

Editor’s Take

Pros

• Lengthy intro APR financing on both new purchases and balance transfers.
• Flexibility to choose your preferred cash-back category.
• Solid welcome bonus after meeting spend requirements.

Cons

• Elevated cash-back rates have a quarterly spending cap.
• Few benefits.
• There’s a foreign transaction fee.

This card’s unique rewards structure lets you choose each month which spending category from a list of six where you want to earn elevated cash back. It’s sure to be a favorite for consumers who need flexibility.

Card Details

• $200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening.
• Earn 3% cash back in the category of your choice, automatic 2% at grocery stores and wholesale clubs (up to $2,500 in combined choice category/grocery store/wholesale club quarterly purchases) and unlimited 1% on all other purchases.
• Choose 3% cash back on gas and EV charging station, online shopping/cable/internet/phone plan/streaming, dining, travel, drug store/pharmacy or home improvement/furnishing purchases.
• If you’re a Bank of America Preferred Rewards® member, you can earn 25%-75% more cash back on every purchase. That means you could earn 3.75%-5.25% cash back on purchases in your choice category.
• No annual fee and cash rewards don’t expire as long as your account remains open.
• 0% Intro APR for 15 billing cycles for purchases, and for any balance transfers made in the first 60 days. After the Intro APR offer ends, a Variable APR that’s currently 18.24% – 28.24% will apply. A 3% Intro balance transfer fee will apply for the first 60 days your account is open. After the Intro balance transfer fee offer ends, the fee for future balance transfers is 4%.
• Contactless Cards – The security of a chip card, with the convenience of a tap.
• This online only offer may not be available if you leave this page or if you visit a Bank of America financial center. You can take advantage of this offer when you apply now.

Credit card vs. debit card key differences

While you may carry both a debit card and a credit card in your wallet, know that when using a debit card, the funds used to pay for a purchase will come directly from the bank associated with your debit card. 

Conversely, when using a credit card for purchases, you are borrowing from a line of credit issued to you by the credit card-issuing bank or credit union at a set interest rate established by the credit card issuer. You will be billed every month for the amount you charge to your credit card, plus any interest charges and fees. 

Credit cardholders can opt to pay off the entire balance by the due date or just pay the minimum required payment amount. If you only make the minimum payment, which is typically a percentage of your balance plus any interest charges or fees or a flat amount (depending on your credit card issuer), then any balance rolled over to the next billing cycle will be subject to interest charges. 

Repeatedly adding new charges to a credit card and only paying the minimum amount due can make it very easy to fall into a cycle of high revolving debt as interest charges can quickly inflate your overall credit card balance, making it more difficult to pay off.

“Generally, if one can manage credit responsibly, a credit card offers more benefits such as rewards and flexible financing options. However, with great power comes great responsibility, so it’s important for consumers to live within their means. If paying off a balance in full is challenging, opting for a debit card or other lending products with lower APRs may be a better choice to stay financially responsible,” said Michael Spelfogel, president and CEO of Cardless, a company that provides the technology platform for brands seeking to issue cobranded credit cards.

Credit card vs. debit card key differences

CREDIT CARD	DEBIT CARD
Funds are borrowed from a line of credit	Funds are deducted from your bank account
Interest assessed on unpaid balances	No interest charges
Easy to accumulate debt	You can only spend what you have in your bank account
Provides zero liability protections against fraudulent charges — meaning cardholders typically aren’t held responsible if there’s a fraudulent charge made on the card	Must report fraudulent charges immediately
Some credit cards charge an annual fee	No annual fee
Helps build credit with responsible behavior	Debit cards do not build credit
Generous rewards programs	Limited or no rewards programs

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What is a credit card and how does it work?

A credit card is typically issued by a bank or credit union, and to obtain one, you must formally submit an application. A credit card application generally requires you to include your name, address, Social Security number, income and employment status and whether you own or rent your home. 

The card-issuing bank will then review your credit profile and credit score to determine whether you fit the criteria it requires for approval. Essentially, applying for a credit card is akin to applying for a loan, since the bank or credit union will evaluate your creditworthiness to decide whether you’ll be a responsible customer who will repay what you borrow on the card.

Once the issuer reviews your application and credit profile, it will either grant you a line of credit or reject your application. If your application is rejected, the card issuer is required to send you a letter stating why your application was turned down.

If approved for a new card, you can then use it for purchases up to the credit limit assigned to the card. 

You will be billed monthly for those purchases with a payment due date. You can either pay the bill in full or make the minimum monthly payment listed on the invoice. If you don’t pay the entire balance off every month, you will be charged the interest on any remaining balance. Your interest rate is set by the card issuer.

If you miss the payment deadline, you may incur a late payment fee. And if your payment is more than 60 days late, you may also be hit with a “penalty rate,” which is an interest rate higher than the one initially assigned to the account.

Finally, the card issuer will report all your borrowing and repayment activity to the big three credit bureaus (Equifax, Experian and TransUnion), which will play into how your credit score is calculated. 

Pros of using a credit card

Some basic benefits of using a credit card over a debit card include:

• Responsible credit card usage can help build your credit score.
• The ability to finance a large purchase over time.
• Some credit cards offer extended warranty and purchase protections beyond what a retailer will offer.
• Better fraud protection than debit cards.
• The ability to dispute unauthorized purchases.

There are different types of credit cards that are tailored to a cardholder’s needs or wants. These can include:

• Cash-back cards offer a certain percentage back on different types of purchases, with earnings often redeemable for statement credits, gift cards or even deposits to your checking account.
• Travel rewards cards offer points or miles that can be used toward travel purchases, and may also include additional travel benefits or protections, such as car rental coverage or lost baggage coverage.
• Premium credit cards carry high-end benefits such as a personal concierge service, airport lounge access or special event access.
• Balance transfer cards allow you move high-interest debt to a card offering an introductory low- or no-interest period in which to pay off the balance faster.
• No-frills credit cards often come with no annual fees and no rewards programs.
• Secured credit cards require a security deposit that acts as your credit line, and can be a great option when you are looking to build or rebuild your credit profile.
• Charge cards generally don’t have a credit limit, but you are required to pay the entire balance every month instead of having the option to just make a minimum payment.

Some things to pay attention to when researching credit cards include annual fees, interest rates, penalty fees, cash advance fees, balance transfer fees, rewards program specifics and card benefits.

Know that rewards cards, especially premium credit cards, may come with annual fees that can range from under $100 to more than $600 a year, which will be added to your balance every account anniversary year.

Cons of using a credit card

With a credit card, you are borrowing money from a lending institution, which carries risks if you don’t repay what you borrow in a timely manner. 

Plus, if you allow your credit card balance to get out of control, it can be incredibly easy to get buried under a mountain of debt as interest charges inflate your balance, making it harder to pay off.

And since your account payment and balance activity is reported to the credit bureaus, your credit score could be negatively impacted if you tend to max out your credit limit routinely or don’t make payments on time.

Learning how to successfully manage your credit card spending and repayment of what you borrow boils down to these four behaviors:

1. Pay your credit card bill on time every time. Payment history accounts for 35% of your credit score, so even if you can only afford to make the minimum payment one month, be sure to pay it on time. You can also set up automatic payments with either your bank or credit card to ensure timely payments.
2. Don’t charge more than you can afford to pay off each month. If you do want to finance a large purchase over several months, make sure you create a repayment plan before adding more purchases to your existing balance. 
3. Don’t max out your card. Keep your balance well below your credit limit. Routinely charging up to your allowable credit limit can negatively impact your credit score as it can send up a signal that you might be in financial trouble.
4. You can avoid interest charges entirely by paying off what you charge every month. If you do this, you’re essentially getting an interest-free loan every month.

Also, be aware many credit cards charge annual fees (especially credit cards offering rewards programs), late fees, over-limit fees and punitive interest rates if you routinely pay late. 

When should you use a credit card?

When deciding whether or not to use a credit card over your debit card for a purchase, here are some important considerations that can help you decide:

• You’re looking to build or rebuild your credit history and credit scores by using a credit card responsibly.
• If you have a large expense that you want to spread out payments over time. For example, if your dishwasher needs replacing, you can purchase a new one with your credit card and pay it off over several months. Know that some credit cards offer an introductory 0% APR for purchases, which allows you a certain timeframe in which to pay off what you owe interest free during the promotion. Any unpaid balance left over after the promotional period expires will be subject to the card’s ongoing interest rate.
• You want to earn cash-back rewards, miles or points with your rewards card that can be applied as statement credits or redeemed for future travel purchases. 
• You want to take advantage of a card’s extended warranty coverage or purchase protection coverage for a pricey purchase, such as a laptop, appliance or car repair, to protect against damage or loss. 
• You’d like certain travel protections offered by travel rewards cards, such as for lost baggage, rental car coverage, trip interruption or cancellation coverage, etc.
• You want the fraud protection a credit card offers for unauthorized charges in case your card gets lost or stolen. Generally, most credit cards offer zero liability coverage, meaning you won’t be held liable for those charges. Or, if a credit card does not offer zero liability coverage, you won’t be responsible for fraudulent charges over $50.

What is a debit card and how does it work?

A debit card involves no borrowing of money, but rather acts as direct withdrawal from funds in your checking or savings account when used to make purchases. Most banks and credit unions offer debit cards to their customers that are tied to their accounts.

There are generally no annual fees associated with debit cards and there is no interest involved. 

You can’t spend more than what you have in the bank or credit union account associated with your debit card as the card will be declined if there aren’t funds to cover the transactions. Know that some financial institutions allow you to opt into an overdraft line of credit, but you may be assessed a fee and/or interest for that service.

Debit card activity is not reported to the credit bureaus, so you won’t have the opportunity to add positive information to your credit reports by just using a debit card.

Pros of using a debit card

Perhaps the best aspect about using a debit card instead of a credit card is that it’s impossible to get into a cycle of escalating revolving debt as you are just using funds directly from your bank account instead of borrowing money that isn’t yours. 

There are no interest charges involved with a debit card nor are there annual fees. 

Debit cards are easy to use, accepted nearly everywhere and more convenient than carrying around cash. They’re great for making routine purchases, such as groceries, and can help you keep from overspending.

Finally, your debit card is most likely your ATM card, allowing you to withdraw cash easily from ATM terminals. But using a credit card at an ATM is considered a cash advance, which can be costly as interest accumulates immediately on the transaction and often is assessed with a higher interest rate than your ongoing APR.

Cons of using a debit card

Know that debit cards don’t have the same robust protections as credit cards when it comes to liability for fraudulent use, although some financial institutions have adopted debit card zero liability protections — but not all. 

That means that if you don’t report a lost or stolen debit card within 48 hours, your liability for unauthorized charges can rise to $500, and after 60 days, there is no limit. Plus, you’ll be out those funds in your bank account until an investigation is completed and ruled in your favor.

That’s why it’s best to use a credit card for, say, online purchases or filling up your gas tank, for the increased fraud protections. 

Debit card rewards programs, if your card offers that, can’t compare with some of the more generous credit card rewards programs. For example, you can’t earn miles or points with your debit card or earn anywhere from 2% to 6% cash back in certain spending categories. 

Many people carry both a debit card and at least one credit card, and divvy up their purchases based on where it makes the most sense to use one type of card over another. 

Frequently asked questions (FAQs)