Comparing the Advantages and Disadvantages of Credit and Debit Cards
Do you know the difference between a credit card and a debit card? While these cards serve the same purpose, they work on different financing principles. Banks give you a debit card complementary to your savings or current account, which you can open in just a few minutes. To get a credit card, you have to go through a process similar to a loan application involving a credit and income check.
The amount you use from the debit card is the money available in your account linked to the card. On the other hand, a credit card allows you to borrow from the issuer up to a specific limit. In addition to this fundamental difference, many key factors set these cards apart, including their pros and cons.
Here is everything you should know about it.
Important Distinction Between Credit and Debit Cards
Before comparing the advantages and disadvantages, here is a quick overview of the difference between a credit card and a debit card.
| Parameter | Credit Card | Debit Card |
| Funds | Borrowed from the issuer for a short-term | Used from the savings or current account |
| Security | Offer insurance, fraud, and liability protection for the card | Payments are secured by two-factor authentication – PIN and OTP |
| Debt Risk | High as you borrow money from the card provider | Low as you withdraw funds from your savings |
| Limit | Decided by the issuer according to your card type and income | Depends on the balance in your account |
| Interest | Attracts interest when you don’t pay your full bill by the due date | Interest is offered based on the account balance |
| Annual fees | Most involve an annual fee to keep the card active | May have a nominal fee to maintain the account |
| Credit Score Required | Most issuers require a score of 750 or above to issue a credit card | Banks require no credit score for you to open an account |
| Incentives | Offers high reward points, cashback, deals, and partner discounts | Usually offers reward points but not as high as credit cards |
| Cash Withdrawal | You can withdraw cash at the ATM, but the issuer will charge interest from the day of the transaction | Allows you to withdraw cash at the bank’s ATM without charges but may involve a fee for using other banks’ ATM |
| Minimum balance | No minimum balance is required | Some banks require you to maintain a minimum account balance depending on the account |
| Impact of Credit Score | Improves credit score with timely repayment | No impact on credit score |
| Application Process | Stringent eligibility criteria with a high score and income requirement | Anyone over the age of 18 can open a savings account instantly. Minors can open too, depending on the bank |
| Foreign Transactions | Globally accepted with lower forex rates | Can make transactions in foreign currency with higher foreign transaction fees |
Comparison of Pros and Cons of Debit and Credit Cards
Based on the above difference between a credit card and a debit card, here is a comparison of their benefits and drawbacks:
Advantages:
| Credit Card | Debit Card |
| Immediate access to funds | Immediate access to funds |
| Lucrative rewards, cashback and discounts | Doesn’t require a credit check |
| Better security measures | Involves lower fees and charges |
| Potential to build credit | No risk of falling into a debt trap |
| Boosts purchasing power | Helps you stick to a budget |
| Interest-free access to credit | Allows you to get cash without hefty charges |
Disadvantages:
| Credit Card | Debit Card |
| Risk of debt and overspending | Doesn’t improve credit score |
| High interest rates | Not as good rewards |
| Can lead to reliance on credit | Comparatively weaker protection |
| Involves numerous fees | Restrict your spending limit |
How Debit and Credit Cards Work
To better comprehend what is a credit card and debit card, you must know their similarities along with their differences. Here are some important common aspects of debit and credit cards:
- They allow you to make convenient transactions at any time.
- They are acceptable at most retail stores and online merchant platforms
- They both come with a fixed withdrawal limit
- You can withdraw cash using both cards
- Both options are more secure than cash payments
Using the above information, you can make a well-informed decision and choose the right payment option. Know that these cards help you with financial requirements under different circumstances and are equally reliable.
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It has many other features that guarantee making your user experience more convenient, rewarding, and budget-friendly. This includes no annual and joining fees, add-on credit cards for 5 family members, no-cost EMIs, lucrative partner offers, etc. What’s more, you can effortlessly manage all credit card activity using the One Credit Card app on your smartphone. Apply online now for a smart credit card experience.