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The difference between a debit card and a credit card

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMar 20213 min read

Debit cards and credit cards are a part of everyday life, but the differences between them can get confusing. It’s important to understand the difference between the two so you can decide when it’s best to use them. While a debit card draws on funds in your account, a credit card allows you to spend funds that you’re borrowing from the bank. This means that a credit card needs to be paid back, while a debit card is paid upfront.

Advantages of debit cards

Debit cards are popular for day-to-day purchases because they draw on the money you already have in your account. It’s easier to keep track of your spending and make sure you don’t go above a manageable level, because you can see the amount you have available until your next payday.

You can get overdrafts on your debit accounts that act as a sort of halfway point between debit and credit cards. This is an agreed amount that you can borrow from the bank beyond what you have available in your account. This does have to be paid back – typically with interest – so it’s not a good idea to rely on this on a daily basis. However, it does give you a buffer if unexpected payments come up or if you need to bridge a gap at the end of the month.

As well as daily/impulse shopping, debit cards are often used to pay for food shops and monthly bills, helping you stay on top of your finances. You can set up standing orders or Direct Debits for regular payments, so you don’t have to remember to arrange a transaction each month. Debit cards can also be used to pay off the money owed on your credit card.

Advantages of credit cards

Credit cards are handy for big payments. They offer an extra degree of protection because the money you’re borrowing belongs to the bank, so there’s additional support if someone you pay money to doesn’t deliver on their end of the bargain. This means credit cards are often used for big transactions such as cars, holidays, or even expensive electronics.

Another reason people often choose to use credit cards for such purchases is because it allows you to purchase pricier items when you need them and to pay off the total amount over an extended period of time, rather than having to have the money upfront. If you don’t have time to save for an essential item, a credit card can come in handy.

Of course, the important thing to remember when using a credit card is that you have to pay interest on any money you borrow. The amount of interest you pay increases with the length of time you take to pay back the money owed, so it’s in your interest to pay off your credit card as quickly as you’re able to do so.

Paying off your credit card also helps to boost your credit score. This is the score lenders use to ascertain how reliable you are as a borrower and therefore how much they should loan you. This is particularly important when it comes to getting a mortgage, but also covers items bought on finance.

How to find the best credit cards

Once you’ve decided to get a credit card, it’s important to shop around to make sure you get the best deal. Different banks may offer you different limits and they will also likely offer varying interest rates, so you may not automatically want to go to the bank with the highest maximum limit.

Most banks will set out their standard offer on their website so you can narrow down your options. You can also call or go into a branch to talk about their credit cards and see if they’re able to make you the best offer, since credit card rates can be negotiable. Search engines and comparison sites will also give you an overview of each bank’s offer, but make sure to check with the individual lender to make sure you get accurate, up-to-date information.

Credit card comparison points

One of the most important points to consider is the annual percentage rate (often abbreviated to APR), which tells you how much you’ll pay to borrow from the bank. Interest-free credit cards are rare, but some banks offer more competitive rates. On top of interest, there are often fees and charges that have to be paid.

Some cards will also offer additional perks such as discounts, cash-back or travel points. Make sure you check what comes with each card so you can make an informed choice.

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