Debit cards look like credit cards, but function like cash or personal cheques. Debit cards can function like an ATM card for immediate withdrawals of money. The key difference between the two cards is where the money is drawn from when a purchase is made.
When a consumer uses a debit card, the money comes directly from their cheque account. Whereas when they use a credit card, the purchase is charged to a line of credit for which a customer is billed later.
Another difference between a credit and debit card is that credit card payments appear on credit history report because credit card companies report payment activity to the credit bureaus.
This can work out well for a credit cardholder to be able to build their credit history because credit cards when used responsibly improve your credit score. Whereas debit card use doesn’t appear anywhere on your credit report therefore they don’t affect your credit history or score.
Even though debit cards have become widely used it’s most credit cards that are accepted around the world whereas certain purchases are difficult to make with a debit card. Rental car companies and hotels want customers to pay with credit cards because it can be easier to charge customers for any damage they cause to a room or a car this way.
Many credit cards offer significant rewards when used responsibly of a reward point system offering up a large number of points that can be redeemed. For rewards like gift cards or air travel whereas the standard debit card offers very small or zero rewards.
Also with a debit card due to the funds being secured against actual bank account funds, the risk of non-payment by the cardholder is lower than that for credit cards. Making the cost of servicing debit cards much lower for banks and the cardholder than it is when using a credit card. Because when it comes to credit cards they can cost you a great deal in transaction costs, annual fees and interest charges.
