Credit Cards vs. Debit Cards: What makes them unique?

Credit and Debit Cards are two popular financial tools. However, they have different features and serve different purposes. Understanding these differences is important for making sound financial decisions. Let us understand how they are different from each other.

Fund sourcing

• Credit Cards

When you use a Credit Card, you can borrow money from the card issuer up to a specific limit. You need to repay the borrowed amount within the due date to avoid interest charges.

• Debit Cards

Debit Cards are linked to your Bank Account. When you purchase anything using a Debit Card, the funds are withdrawn from your account instantly.

Interest rates

• Credit Cards

If you maintain an outstanding balance on your Credit Card beyond the grace period, which is the range between the end of the billing cycle and the due date, you sccrue interest charges on the balance.

• Debit Cards

Since Debit Card transactions are directly linked to your account balance, you do not incur interest charges. However, be careful of potential overdraft fees if your account balance is insufficient.

Credit limit and account balance

• Credit Cards

Credit Cards have a fixed credit limit, which represents the maximum amount you can borrow. The bank decides and sets this limit based on your credit history, income, and other financial factors.

• Debit Cards

Debit Cards have no credit limit. Instead, they are directly linked to the available balance in your Bank Account. Your spending depends on the funds you have in the account.

Builds credit history

• Credit Cards

Responsible Credit Card usage, such as making timely payments and managing credit balances, can positively impact your credit score. A good score is important if you want to secure Loans and enjoy favourable interest rates.

• Debit Cards

Debit Card transactions do not contribute to your credit history or affect your credit scores. They are simply a way of accessing your funds.

Security measures

• Credit Cards

Credit Cards often provide strong fraud protection. Many issuers offer zero-liability policies for unauthorised transactions.

• Debit Cards

Debit Cards come with fraud protection. However, the liability limit is higher and depends on how soon you report the unauthorised transactions.

Benefits and rewards

• Credit Cards

When it comes to Credit Cards, you get access to reward programmes, cash back, travel perks, and other incentives. These benefits vary depending on the Credit Card you choose.

• Debit Cards

Debit Cards do not offer too many perks. While some Debit Cards may have cashback programmes, their validity depends on several factors.

Conclusion

Understanding the key differences between Credit and Debit Cards lets you choose the right tool for various financial situations. Selecting the card that matches your goals is crucial for a sound financial strategy.