Using a debit card has one major advantage over a credit card — you’re paying with money you already have in the bank and avoiding debt. But a debit card doesn’t improve your credit score, among other things.
Which card should you use when shopping? Here are some of the major differences between debit and credit cards:
Immediate vs. deferred payment: A debit card is connected to a bank account, so once a cashier scans the card, the payment is deducted directly from your linked checking or savings account after the bank electronically verifies that the money is available.
If you buy something today with a credit card, you won’t have to pay for it until the bill arrives in about 30 days. This deferred payment, however, can come with a price if you don’t pay the bill in full: interest charges. Debit cards don’t come with interest rate fees.
Overdraft fees: Because a debit card works like an electronic check that is paid immediately, your bank account could still be overdrawn if there isn’t enough money in the account to cover the transaction. Your bank could still approve the transaction, and you’d likely have to pay an overdraft fee, just as you would for bouncing a paper check.
Debit card purchases are posted within 24 hours, so the bank may approve a transaction without knowing what other withdrawals you made with a debit card throughout the day before all the debit transactions are settled for the day. If your debit card has overdraft protection, you could still face a fee until you make a deposit to cover the extra purchases.
Credit cards don’t necessarily charge overdraft fees, but your credit limit is capped and you’ll have to ask the creditor for a higher limit if you need it. Credit card issuers charge late fees if you’re only one day late paying your credit card bill.
Improve credit score: Debit cards don’t help or hurt your credit score, but a credit card will, with 35 percent of a FICO credit score determined by a user’s payment history. Paying the credit card bill in full and on time each month will improve a credit score.
Protections: The federal Truth in Lending Act, or TILA, offers credit card protections for consumers, such as limits on penalty fees for late payments and over-the-limit fees. TILA limits a consumer’s liability to generally no more than $50 for lost or stolen credit and debit cards, according to the Federal Trade Commission, as long as the loss or theft is reported within two business days of learning about it.
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