Debit and credit cards what is the difference?

Debit or Credit Cards

Credit and debit cards typically look the same on the surface. Both have 16 digits, an expiration date, magnetic stripes, electronic chips and security codes.

These two types of cards can make it easy and convenient to make purchases in stores or online, with one key difference. Debit cards allow you to make payments with the deposits you have in your bank account. Credit cards allow you to borrow money from the card-issuing bank up to a limit of money to make cash withdrawals or for purchases.

Many people have at least one credit card and one debit card in their wallets. The convenience and protection they offer is something that other payment methods can hardly match. However, these card types have key differences that could substantially affect your cash flow. With this guide, you can decide which of the two to use to meet your financial and spending needs.

Key points

Credit cards give you access to a line of credit from a bank, while debit cards deduct money for payments or withdrawals directly from your bank account.

Today, credit cards offer better fraud protections for consumers. This compared to debit cards.

The new debit cards offer more protections, in the style of credit cards. At the same time, many credit cards have stopped charging handling fees.

When comparing credit cards to debit cards linked to a bank account, it’s important to consider fees and benefits.

What is a credit card?

A credit card is a card offered by a financial institution or bank and allows its holder to request credit from that institution. Card owners agree to pay the money back to these institutions with interest according to the terms of the card.

Credit cards are issued in the following variety of categories:

Standard cards

These simply extend a line of credit to users to make purchases, balance transfers, and/or cash advances. These types of cards often do not charge a handling fee.

Premium cards

They offer benefits such as concierge services, access to special events, access to airport lounges, percentage cash back on accumulated purchases, and more. These cards usually have higher handling fees than standard cards.

Rewards cards

They offer cash back, travel points (also called miles), or other benefits to customers based on their spending habits.

Secured credit cards

These cards require an initial money deposit, which is held by the bank or financial institution as collateral.

Charge cards

They don’t have a pre-set spending limit, but they rarely allow unpaid balances to roll over from month to month.

What is the credit card handling fee?

Management fees are a monthly or annual fee charged by the financial institution for the right to use its own ATMs, as well as for the credit and payment services they provide at the payment points, and for the fees they share with the card-issuing franchises.

With the arrival of new financial institutions in the market, such as neobanks, many institutions have stopped charging management fees and have begun to offer much more competitive credit services.

Neobanks like Nubank do not charge handling fees or ask the cardholder to purchase insurance services. These new entities only charge the purchase commissions to the businesses and the legal interests for the credits.

Why do so many people use credit cards today?

Credit card users can take advantage of cashback, discounts, travel points, and many other benefits not available to debit card holders. These benefits are generally available with rewards credit cards.

Rewards can be applied based on a fee in the handling fee, so they are especially advantageous for people who make large monthly purchases.

Also these rewards can be applied at conditioned rates.

For example, you could have a credit card that offers two unlimited flight miles for every dollar spent on purchases. Another card offers you three miles for every dollar spent on travel, another that offers two miles for every dollar spent on food, and one dollar per mile for any other additional expenses. You could use those miles earned to book future trips or travel benefit agreements.

All of these benefits are one of the main reasons why so many people use credit cards today.

What are the advantages of using credit cards?

Credit cards offer certain advantages that debit cards do not. However, there may also be some disadvantages. Here we take a look at the pros and cons of using credit cards.

They help build your credit history

The use of credit cards is reflected in your credit report. This includes positive history, such as on-time payments and low credit utilization rates. The credit report also includes negative events such as late payments or bad behavior.

Information from the credit report is then used to calculate a cardholder’s credit score.

Responsible credit card users can boost their credit score with spending history and on-time payments, as well as keeping their card balances low relative to their card limits.

Purchase Warranties and Protections

Some credit cards may provide additional guarantees or insurance on purchased goods that go beyond the guarantees offered by merchants. For example, if an item purchased by credit card breaks after the manufacturer’s warranty has expired, it’s a good idea to assess whether the credit card company provides any type of coverage.

Consumers can also purchase price protection that helps you get discounts or money back if you find the same item you bought cheaper elsewhere.

Fraud Protection

In most cases, credit cards offer much more protection against fraud than debit cards. If the customer reports the loss or theft in a timely manner, your maximum liability for purchases made after your card is missing will be $50.

In the United States, the Electronic Funds Transfer Act gives debit card customers the same protection in the event of loss or theft, but only if the customer reports it within 48 hours of the loss or theft occurring . After 48 hours, the user’s responsibility rises to $500, after 60 days, there are no limits to the responsibility that the customer has to assume.

Other advantages of credit cards

The United States Fair Credit Act allows credit card users to dispute unauthorized purchases or purchases of goods that were damaged during the shipping process. If the item was purchased with a debit card, then the amount cannot be reversed unless the merchant is willing to do so. What’s more, victims of debit card theft don’t get their funds back until a full investigation is done.

A credit card holder, however, is not responsible for disputed charges; the amount is usually deducted immediately and restored only if the dispute is withdrawn or settled in favor of the merchant. Although some debit and credit card providers offer zero liability protection to their customers, the law is much more favorable to credit card customers.

If you need to rent a car, many credit cards provide some type of exemptions and protections against collisions. Even if you wanted to use a debit card, many car rental agencies will require customers to provide their credit card information as collateral. The only way the customer can use their debit card is by allowing the car rental agency to take a security or blocked deposit from the customer’s savings account in the form of insurance.

Disadvantages of using credit cards

The main disadvantages of using credit cards include debt, impacts on credit scores, and costs.

Excessive spending can lead to abundant debt

When you make purchases with a credit card, you are spending the bank’s money, not your money. This money has to be paid back, with interest. In some cases, you could be making a minimum payment each month, which may be more inconvenient than paying in a few installments or in one installment. Carrying high balances on multiple cards can make it more difficult to maintain monthly payments and this can hurt your monthly budget.

Negative Impacts on Credit Score

Paying your credit card on time and keeping balances low can help your credit score. However, misuse of credit cards can damage your credit history if you get in the habit of paying late, amassing too many cards, closing old accounts, or applying for new credit cards too frequently.

Interest and fees

Another big disadvantage is interest and bank fees.

Since a credit card is a short-term loan, you will have to pay back what you spend with interest. The interest rate and fees that the credit company charges you are used to calculate your annual percentage rate. The higher your annual percentage rate, the more it will cost you to maintain your debt balance each month.

You should be aware of the other associated costs and fees. A bank may charge you an annual handling fee, a money advance fee, a fee for cash withdrawals, for international purchases, international ATM withdrawals, and for late payments.

A general rule of thumb for credit cards is that the better a card’s benefit programs, the higher the annual handling fee.

What is a debit card?

A debit card is a payment card that makes payments by deducting money directly from the user’s bank account. In this case, the bank does not lend money to the client so that he can use it through a card.

Debit cards offer the convenience and facilities of credit cards and many or some of the protections of major payment processors such as Visa or Mastercard.

There are three main types of debit cards that do not require the customer to have a savings account, as well as the standard card.

These are the main debit cards

Conventional or standard debit cards

These require you to have a savings account from which the money you spend or withdraw via ATM will be deducted. In the case of low amount deposits, the money is deducted from the electronic application where the client has the money.

Electronic Transfer Benefit Cards

In the United States, these cards are issued by state or federal government agencies and allow users to qualify for benefits for purchases. Some governments of other countries may also issue similar cards.

prepaid debit cards

These give users without a bank account the opportunity to make purchases electronically or in physical establishments with the amount that was preloaded on the card.

Covered debit cards

Through these cards, the user can access a certain amount of money established by a bank client who has a savings account. In this case, the one who protects the card can be a relative or friend of the one who uses the protected card.

For what type of customers is the use of debit cards convenient?

Frugal consumers may prefer to use debit cards because they usually do not charge a handling fee or a very low handling fee. Clients also do not incur costs associated with advances of money lent by banks or interest on the money.

In contrast, credit cards usually charge annual handling fees, advance fees, late payments, and other types of penalties, in addition to monthly interest on the balance spent.

Benefits of using debit cards

Debit cards also have their advantages and disadvantages, as is the case with credit cards.

They save you from debt

A debit card deducts money for payments from what the customer already has in their bank account, eliminating the danger of accumulating debt. Sellers know that people spend more money when they use cards than when they pay with cash. By using debit cards, compulsive consumers can avoid the lure of credit and stick to their budget. This can help them avoid high interest rates.

Fraud Protections

In addition, some debit cards, particularly those issued by payment processors such as Visa or Mastercard, are beginning to offer some of the same protections as credit card holders.

The key here is to report the fraud or theft as soon as it has occurred. The user’s responsibility for fraudulent purchases will be determined by the time the user has taken to report his case. Waiting too long to let the bank know that the card has been used for unauthorized purchases may result in the user bearing full responsibility for lost money.

No excessive handling fees

In Latin America, banks generally charge a lower rate for the use of debit cards than for credit cards. There are also no fees associated with withdrawing money at ATMs of the card-issuing bank. On the other hand, credit cards may charge you for cash advances plus hefty interest for this benefit. However, in some cases it is possible to see that there are already banks that do not charge any handling fee associated with the use of the debit card.

In the case of electronic deposits that issue debit cards, most of them do not charge handling fees.

Disadvantages of debit cards

Just like credit cards, the biggest drawbacks of using debit cards may involve impacts on your credit score and associated costs.

No rewards

Unless you have a rewards checking account, you won’t earn any points, miles, or cash back on your debit card purchases. Since rewards can save you money, depending on how you redeem them, you could be losing money if you only pay for your purchases with your debit card.

Does not help you build your credit history

Building a good credit history means showing lenders that you are responsible for paying back the money that is loaned to you. When you’re spending money with a debit card tied to your savings account, you don’t have a chance to prove that you’re responsible by paying credits . For this reason, using a debit card on your own will not help you build a good credit history or score.


Although debit cards don’t charge you annual fees, you may have to pay fees to maintain your savings account. It is also possible that you will have to pay for withdrawals at ATMs even in your own banking network if the entity has established this. It is also very common that you have to pay fees for the use of your debit card at international ATMs or pay fees related to purchases online and in physical establishments.

Generally, the fees for card purchases are not specified. Merchants tend to use higher prices for debit and credit card purchases that do not apply to purchases made with cash.

Frequently asked questions related to the use of credit and debit cards

Is it possible to earn reward money or miles with debit cards?

Generally speaking, no. Debit cards typically do not offer purchase points or miles on every purchase. However, the accounts from which the money is debited may in some cases offer certain benefits for a certain number of transactions.

Standard debit cards may also offer the benefit of allowing transfers of funds to savings accounts, something that is not possible with credit cards.

Do all credit cards charge interest?

It is generally impossible to see zero percent interest rate promotions. All credit cards will eventually charge interest on their customers’ credit balances. This interest rate is based on the policies adopted by the entity in relation to the client’s credit score as well as the maximum interest rates allowed by regulatory entities.

However, it is possible to avoid interest payments when customers decide to pay their consumption in a single installment and when they do not request cash advances or extensions in their credit quotas.

Can anyone apply for a credit card?

Most people can apply for a credit card as long as they have a good credit score, a certain income level, or have never applied for credit before.

Those people without credit, the minimum level of income required to apply for the card or with a bad credit history, can apply for a secured credit card, in which the line of credit is secured by a deposit when the card is requested.

In the case of credit cards with higher rewards and benefits, the bank or card issuer will require better credit scores.

What entities issue credit and debit cards?

The main issuers of debit and credit cards are banks. These entities are the world leaders in issuing credit and savings accounts. In addition to these entities, local or national supermarkets can issue credit cards for you to make purchases with them or with associated entities. In the case of Colombia, businesses such as Falabella or Grupo Éxito have developed their own credit cards for consumers.

Other entities that issue credit and debit cards are the neobanks, as is the case of Nubank, Ualá or Brubank. These are financial entities that operate 100% from the digital world.

International entities such as stock brokers, such as eToro, or cryptocurrency exchanges can issue their own debit cards to make withdrawals from investment accounts.

Likewise, community savings and credit corporations, private investment companies and other financial institutions can issue their own debit and credit cards.  


Debit and credit cards may seem similar, but their benefits and drawbacks are very different.

If building a credit history, earning rewards, cash back and guarantees on purchases is important to you, then a credit card is for you.

If you prefer to keep your finances in check and spend within your income budget, then the debit card is the best option.

It does not matter which of the two cards you choose. Make sure you know the associated fees, make responsible use of your cards and stay informed about changes, benefits and discounts offered by your bank for each case.

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