What’s the difference between a credit card and a debit card?
Have you ever been confused about what the differences are between credit and debit cards? They both look similar, offer the convenience of not having cash, and are accepted at a lot of merchants. Take a look to understand how they’re different from one another! 👇🏼1.Source of money The fundamental difference between a credit card and a debit card is where the money comes from. When you make a purchase with your credit card, you’re essentially borrowing the money from your bank, which you’ll have to repay before a specified due date. The beauty is that you don’t need to have the money available at the point of purchase, BUT you run the risk of late repayments of your credit card’s outstanding balance (and incurring all sorts of penalties and fees as a result), as well as spending more than you afford. On the other hand, with a debit card, the money is deducted from your bank account directly when you make a purchase, so make sure you have enough money in the account before making a purchase! 2.Spending limit Another main difference between a credit card and a debit card is your spending limit. With a debit card, you can only spend from your saving in the bank account. And you can even set a limit for your transactions[JW1] – the more your spending limit is, the more you’re allowed to spend. With a credit card, you can spend up to the credit limit granted by your card issuer – this credit limit is determined by your credit score, which in turn is subject to a variety of factors, such as your credit history, income, and even your debt-to-income ratio. To increase your spending ability with a credit card, you will have to wait for your card issuer’s approval to raise your credit limit. 3.Impacts on credit score As mentioned above, when you buy something with a credit card, you are essentially borrowing money from the issuing bank to make the purchase. As your credit score is affected by a number of factors including your ability to repay your outstanding balances in time, make sure you’re in control your spending and can repay everything on time because a poor credit score will make it more difficult for you to get a loan for things like a car or home mortgage – even if you’re able to get a loan, you may need to repay it at a higher interest rate!Does this mean a debit card is the perfect solution? That really depends on your spending habits. If you’re a shopaholic and always run the risk of overspending, a debit card is the way to go. If you want to build a good credit score, a credit card may be a better option for you. Remember: if you’re looking to apply for a loan at some point (which might come in handy when you’re looking to buy property or a car), you need to maintain a healthy credit record! 4.RewardsWhen it comes to rewards, it can be the same for both credit and debit cards, depending on the banks’ promotional offers. Pay attention to the latest promotion from different banks in order to make the most of your spending!Hope you’re more familiar with the differences between a credit and a debit card after reading this article! Make sure you understand your spending habits before deciding whether a credit/debit card is suitable for you!