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Published: Apr 10, 2014

The Differences Between Debit and Credit Cards

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Debit cards and credit cards look the same, function the same, and are accepted at the same places. So, is there actually a difference between a debit card and a credit card? You may be surprised to know that there are quite a few differences. Namely, a credit card is a loan. Your financial institution loans you this line-of-credit so you can make purchases, but you do not have to pay for them right away. With a credit card, you end up paying for the purchase about a month later depending upon your due date and billing cycle date. To obtain a credit card, you will need to submit an application to your credit union or bank. A representative will then review your application, your income, and your credit report when making the decision to approve you for this loan.


Alternatively, a debit card is connected directly to your checking account and provides additional access to the funds in your account. While you can borrow money up to your card’s limit with a credit card, a debit card will only allow you to spend what you already have in your account.


Even though credit cards and debit cards are different, a debit card is often used similarly to a credit card. Have you ever used your debit card at a store and the merchant asks if you would like the purchase to be debit or credit? Did you know that you can choose credit even if it is not a credit card? Purchases with debit cards can be processed as a debit transaction or a credit transaction. A debit transaction means that you will have to enter your four-digit Personal Identification Number (PIN) that is associated with the debit card. Once the purchase is finalized, the money is withdrawn from your account immediately. A credit transaction does not require a PIN to be entered, but it asks that you provide your signature to finalize the purchase. The total amount of the purchase is then placed on hold in your account, and the actual transaction will take a few business days to completely post to the account.


While you are able to finalize your purchase either way, there are more security benefits to processing a transaction as credit rather than debit. When you sign for a purchase to finalize it instead of entering your PIN, the transaction has more protection from the card company that provides the card. For instance, if your debit card is a Visa Debit Card, it is provided to your credit union or bank by Visa. The usage of your debit card will then be protected under company regulations set forth by Visa’s Zero Liability policy. If you process a transaction as debit, the protection from Visa would not apply. This same principle applies to debit cards that are backed by other companies as well. In the event that there is a fraudulent transaction or a need to dispute a transaction, you will have better security with transactions processed as credit because they carry additional protection and resources from an outside company. Deciding to process your purchases as credit or debit will depend on your personal preference, though we hope that the next time you use your debit card you feel more informed on the differences between using it as a “debit” or as a “credit” transaction.


MSU Federal Credit Union is committed to the financial wellness of its members, and financial literacy is one of the many ways in which we build dreams together. Stay tuned for future financial education articles and features about our community partners!