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Credit vs. Debit Card

Many people carry both a credit card and a debit card in their wallet and frequently use them interchangeably without really knowing the difference between debit and credit. There are some very important differences you should understand so that you can use them correctly.

The primary difference between a credit card and a debit card is with one, you are borrowing money and with the other, you are withdrawing your own funds from your bank account. A credit card extends you “credit.” When you use it, you are borrowing money from the issuing company in the form of credit. When you pay your credit card bill, you are paying the amount that you have borrowed, plus a fee for borrowing that amount (interest). Alternatively, when you use a debit card, you are withdrawing funds from your bank account, instead of borrowing money from someone else.

It’s important to understand this key difference between a credit card and a debit card, which many do not. Specifically, when using a credit card, you are borrowing money. Many things that people use a credit card for are not really worth taking out a loan to make a buy, but this is exactly what they are doing. As long as they pay the bill in full every month, it’s not an issue. However, if the balance is not paid in full, they have to pay interest on the borrowed money, which increases the cost of the borrowed money (loan).

Debit cards and credit cards also differ in how they can be used. While both can be used in a lot of places, there will be times when a credit card will be required, such as booking a hotel room or renting a car. This is because the total amount owed is not known or finalized at the time of booking. A credit card guarantees payment on the final bill. Debit cards are typically not accepted in these types of situations since the total amount is not known therefore can’t be “debited” from the person’s bank account at that time.

Another difference between a credit card and a debit card is that a debit card will not affect your credit rating. Since you are not borrowing money, there is no credit extended, therefore nothing is to be reported to the credit bureaus. This is both good and bad. It’s good that a debit card can’t hurt your credit but it’s bad that you can't use it to build good credit history. Therefore, it’s a good idea to have a credit card in addition to a debit card to help build your credit, as long as you can manage it responsibly and pay your bill in full and on time.

When looking at spending in terms of credit vs. debit, they are both available for your protection. Credit cards can help build your credit score if you have the funds or are expecting the funds into your bank account. Debit cards can help you avoid interest if something goes wrong or the funds aren’t available to pay back the credit borrowed to you.

Please visit the following ConnectFinance resources for other information on how to get out of debt and improve your credit.

A "personal loan" is a financial product that provides consumers with a low amount, short-term cash loan. These loans are typically 2-3 weeks in duration and are not based on the borrower’s credit. Using a simple application, like the one on this website, personal loans provide borrowers with a financial option for quickly acquiring the money they need to cover small unexpected expenses.

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Installment loans are very similar to online personal cash loans in that it's a lending product that enables consumers to quickly acquire money needed to pay for immediate, and often, unexpected expenses. However, an installment loan is repaid over time based upon a set number of scheduled payments, instead of one lump sum like a personal cash loan.

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Auto title loans, also referred to as car title loans or cash title loans, are a type of secured loan where the borrower can use their vehicle title as collateral. Borrowers must allow a lender to place a lien on their car title, and temporarily surrender the hard copy of their vehicle title, in exchange for the loan.

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A line of credit loan is an online cash loan where credit is extended to individuals to be used as needed over a period of time. It uses a debit card to provide the credit, which the consumer uses for purchases.

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A line of credit loan is an online cash loan where credit is extended to individuals to be used as needed over a period of time. It uses a debit card to provide the credit, which the consumer uses for purchases.

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