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


With 16 digit card numbers, expiration dates, and PIN codes (personal identification number), Credit Cards and Debit Cards look similar, but did you know they are very different?

A Credit Card is supplied by a financial institution or credit card company, as a limited personal loan. If you apply for a credit card, you are issued a credit limit. When you spend money on the credit card, you are borrowing funds from the financial institution or credit card company that you will have to pay back, with interest (read more about Interest and APR).

A Debit Card is supplied by a financial institution, allowing you to spend money by using the funds you have deposited in your account.

Simply put, credit cards allow you to spend using borrowed money, while debit cards use money deposited in your account.

You probably have at least one credit card and debit card in your wallet. Both offer convenience and protection that are hard to beat, but they have important differences that could affect your financial well-being.

Credit Cards

Again, credit cards are issued by a financial institution or credit card company that allows you to borrow money. By becoming a cardholder, you agree to the institution’s terms of paying back the money borrowed along with interest.

There are four categories for credit cards:

Standard Cards simply extend a line of credit to the borrower. (Line of Credit: a present amount of money that can be borrowed)

Rewards Cards offer rewards on credit card purchases like cash back, travel points, points to redeem for merchandise, and other benefits.

Secured Credit Cards require a security deposit to be placed on the card. These are an option for people who don’t have credit history or have damaged their credit.

Charge Cards do not have a preset spending limit and balances must be paid in full at the end of each month.

ēCO credit card options fall into the standard and rewards card categories, but we will explore that more later!

As a credit card user, you are able to earn cash, discounts, travel points, and other rewards that are not available to debit card users when using rewards cards. When you pay off your credit cards in full and on time each month, you can benefit by earning reward points without paying interest. The key to using your credit card for monthly purchases and bills is to pay off the card in full and before the due date for each billing cycle. Credit card use is reflected on your credit report; if you’re a responsible spender, it also helps to raise your credit score by increasing your credit history and recording timely payments.

Credit Card users are also highly protected from loss or theft if the incident is reported in a timely manner. The maximum charge for purchases made after the card is lost or stolen is $50. The Fair Credit Billing Act allows you to dispute unauthorized purchases or purchases of goods that are lost or stolen during shipping (Federal Trade Commission Consumer Information, 2012). Some credit card companies may also provide additional warranties or insurance for items purchased. If an item bought with a credit card becomes faulty after the manufacturer’s warranty is expired, it is worth checking with your credit card company to see if any coverage can be provided.

A disadvantage of being a credit card holder is the danger of overspending and racking up debt. The rewards, benefits, and discounts offered by credit card companies are typically funded by the interest and other charges of users who do not pay off their monthly balances. If you are an impulsive spender, be cautious of using credit cards. In addition to interest, credit card holders can charge annual fees, over-limit fees, late-payment fees, and many other penalties.

It is important that you do your research on credit cards, compare credit cards, and pay attention to the terms and conditions before signing up or applying.

Debit Cards

Now that we have read a little about credit cards, let’s talk about debit cards. Again, debit cards are supplied by a financial institution, allowing you to spend money by using the funds you have deposited at your financial institution.

When using a debit card for a purchase or payment, money is deducted directly from your checking account. Debit cards are offered through major payment processers like VISA® or MasterCard®, giving you the same convenience and many of the same protections as credit cards.

Just like credit cards, there are different types of debit cards, some that don’t require a checking or savings account.

These are the types of debit cards:

Standard Debit Cards draw money from your account.

Electronic Benefits Transfer (EBT) Cards are cards that are issued by state and federal agencies to allow qualifying users to use their benefits to make purchases. Examples of an EBT card are Supplemental Nutrition Assistance Program (SNAP), Supplemental Nutrition Program for Women, Infants, and Children (WIC), Temporary Aid for Needy Families (TANF), and some state general assistance programs.

Prepaid Debit Cards are pre-loaded with a certain amount of money that allows you, without access to a bank account, to make electronic purchases that do not exceed the amount on the card.

ēCO offers a free standard VISA® Debit Card when a checking account is opened. ēCO also offers VISA® Gift Cards and VISA® Travel Cards, which are prepaid debit cards. Keep reading to see the credit card and debit card options and benefits provided by ēCO!

One of the best advantages of using a debit card, rather than using a credit card, is eliminating the danger of overspending and racking up debt. By using a debit card, you are spending the funds you already have, which helps you be more conscientious of your spending habits and hopefully, stick to your monthly budget.  Unlike credit cards, debit cards usually have few or no associated fees unless you spend more money than what you have in your account.  If you are using a standard debit card and spend more money than what is in your account, you could be charged an overdraft fee.

The Electronic Fund Transfer Act gives you- as a debit card user- the same protection from loss or theft as credit cards receive but only if the lost or stolen card is reported within 48 hours of realizing it is gone. After 48 hours, your liability rises to $500; after 60 days, there is no limit (Federal Trade Commission Consumer Information, 2012). Unlike credit cards, you cannot dispute unauthorized purchases or purchases that are lost or damaged during shipping, when the purchase is made with a debit card. It is the decision of the merchant whether or not the charges can be reversed. When dealing with card loss, theft, disputes, and investigations, the process is much easier and the law is much more forgiving for credit cardholders.

Now that you know the difference between credit cards and debit cards here are the options ēCO provides to our members:

Debit Cards

Members with ēCO’s Basic, Advantage, and FORWARD Checking Accounts have access to free VISA® Debit Cards. Debit Cards can be used anywhere VISA® is accepted and at Co-Op Network ATMs Nationwide —surcharge-free. And ēCO debit cards are chip-enabled! Learn more HERE!

Gift Cards & Travel Cards

ēCO members can purchase and pre-load a VISA® Gift Card at any ēCO Branch. VISA® Gift Cards are a perfect present for weddings, graduations, birthdays, housewarming parties, and so much more! Check out the benefits of a ēCO VISA® Gift Card HERE!

ēCO also offers members VISA® Travel Cards. This card is prepaid and reloadable that offers a better alternative to traveler’s cheques and cash when traveling! Check out the benefits of a ēCO VISA® Travel Card HERE!

Credit Cards

ēCO offers five VISA® Credit Cards to meet all of your needs! Plus, members can enjoy NO annual fees, application fees, balance transfer fees, or cash advance fees when they are approved for a ēCO Credit Card! You can also earn rewards for purchases made with the ēCO FORWARD, ēCO Platinum, ēCO Platinum Preferred, and ēCO Platinum Preferred Plus Credit Cards! Check out all the benefits of applying for an ēCO Credit Card HERE!

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