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Credit Cards vs. Debit Cards - What's the Difference?

ASB November 15, 2021 | 6 MIN read Personal

Credit and debit cards often look nearly identical at first glance. When someone pulls a card out in the checkout line, you may not know if they’re using credit or debit. The difference between these cards, however, is important.

Credit cards let you temporarily borrow money from the credit card company to make purchases. You’ll pay the lender back at the end of the month with your credit card bill. Debit cards are linked directly to your checking account. When you use a debit card, the money is immediately withdrawn from your account.

At American Savings Bank, we offer both credit and debit cards. Each type of card has its advantages and disadvantages. Read on to learn more about credit cards vs debit cards.

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Credit cards are essentially a line of credit. They’re issued by a company that agrees to lend you money to make purchases. You agree to pay back money you borrow, usually with interest charges added to the total balance.

Your credit card comes with a maximum amount you’re allowed to borrow, known as your credit limit. You won’t be able to make new purchases on your card if you’ve reached your limit. You’ll have to pay down your existing balance before you can use the credit card again.

For example, if you’ve maxed out a credit limit of $1,000 and pay $200 toward your credit card balance, you’ve reopened $200 of credit available for spending on the card.


Many people use credit cards for everything from everyday purchases to major expenses. Credit cards can be a useful financial tool but come with unique risks.


  • Builds Credit: Your credit card issuer reports to the three major credit bureaus. When you make on-time payments, this regular report helps you build your credit score. As long as you’re using your credit card responsibly and paying your bills on time, a credit card could be one of the best ways to build or improve your credit score.

  • Earns Rewards: Many credit cards come with rewards like cash back or points you can redeem for gift cards. Reward cards often let you earn rewards with every purchase, so you’ll be rewarded each time you swipe your card.

  • Fraud Prevention: Credit cards are generally better at preventing or fixing fraudulent charges than debit cards since your money doesn’t leave your account until you pay your credit card bill. This gives you more time to look over recent transactions and identify any fraudulent charges. Most credit cards have built-in fraud protection that reduces your liability if you fall victim to fraud.

  • Widely Accepted: Some purchases may require a credit card instead of a debit card like hotels and rental cars, which almost always require a credit card. This helps the company ensure that you’ll be able to pay for their services.


  • Easy to Get into Debt: Using a credit card can lead to overspending since the money doesn’t leave your account until you pay your bill. If you’re not careful, this overspending could put you into debt. Even if you make your minimum payment each month, you could be accruing interest charges on your remaining balance. Every time you make a purchase on your card, your balance increases and it may get more difficult to pay it off.

  • Could Hurt Your Credit Score: Using your credit card responsibly is a great way to build credit. However, if you’re not careful, credit cards can also greatly hurt your credit score. If you miss payments or apply for too many cards, your credit score could go down.

  • Paying Interest and Fees: Credit card interest fees are well-known for being high. If you carry a balance, you’ll likely have to pay interest on purchases you don’t pay off with your monthly bill. These interest charges can add up over time and can increase your total credit card bill. Many credit cards also have fees like foreign transaction or annual fees.

  • Credit Limit: Your spending is restricted to your credit limit so, if you’re not approved for a high credit limit, you won’t be able to make big purchases on your card. Or, you’ll need to regularly pay down your balance to keep using the card.

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You could think of a debit card as a “plastic cash". When you swipe a debit card, the purchase amount is withdrawn from your checking account immediately. If you try to spend more than you have in your account, your bank may deny the purchase or charge an overdraft fee on your account. However, unlike credit cards, debit cards don’t accrue interest and you won’t receive a monthly bill with your spending.


Debit cards also come with advantages and disadvantages.


  • Less Likely to Cause Debt: Debit cards are tied directly to your checking account, which means you won’t receive an ongoing balance to pay off each month.

  • Just Like Using Cash: Worried about managing monthly bills or balances with a credit card? Debit cards work just like cash, so there’s no monthly bill that you need to pay or worry about.

  • Little to No Fees: While some checking accounts have fees, most debit cards won’t have fees tied to it. Many banks will even waive checking account fees if you meet certain criteria.

  • Easy to Get a Debit Card: Most checking accounts include a debit card. It’s much easier to open a checking account and get a debit card than it is to apply for a credit card and get approved. Where credit cards rely heavily on your credit score and history, most people can easily open a checking account with few requirements.


  • Risk of Overdrafts: You won’t go into debt from running a balance on a debit card, but you can still overdraft on your account. This happens when you withdraw more money than you have in your checking account. You’ll usually face overdraft fees if you make a purchase but don’t have the money to cover it.

  • Doesn’t Build Credit: Debit cards don’t report your activity to the three major credit bureaus so, even if you’re responsible and never overdraft on your account, your debit card is unlikely to help you build your credit score.

  • Few Chances for Rewards: Few debit cards have rewards programs. Even those that offer rewards usually don’t have as good of rewards as a credit card. You’re unlikely to get cash back, travel miles or gift cards from using a debit card.


Whether you choose credit cards or debit cards, it could come down to which pros and cons are most important to you. It often comes down to your needs and spending habits.

You might want to choose a credit card if:

  • You’re responsible with spending and can avoid going into credit card debt.

  • You want to earn rewards for your spending.

  • You travel a lot and need a credit card to book hotels, flights and rental cars.

  • You’re trying to build or improve your credit score.

A debit card might be the better option for you if:

  • You want to use cash without having to carry bills.

  • You’re prone to overspending and want to limit your chance of racking up debt.

  • You don’t want to manage a monthly bill.

  • You want to avoid fees and interest charges.


Picking the right card for your situation doesn’t have to be difficult. You can open an account online, or make an appointment with one of our bankers who can help you to compare your credit and debit card options at one of our local branches.


Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion that it is appropriate for readers. The information that is contained in this material is general nature. Readers should seek professional advice for their respective situations.

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