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- Introduction
- How credit and debit cards work
- The effect of credit and debit on your finances
- Security and fraud protection for your cards
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Credit and debit cards may look similar, but their features and uses are very different. Knowing when and how to use each can help you build a stronger credit history and keep your debt levels down.
How credit and debit cards work
Both cards can help you purchase things, but they draw money from different sources. This impacts how you can use them.
Origin of funds
Credit
You borrow money from a lending institution and pay back some or all of it each month.
Debit
Money comes directly out of your checking account.
How funds are deducted
Credit
When you use your credit card, the credit card company pays the vendor for the purchase.
Debit
When you use your debit card, the funds are transferred from your account.
Access to funds
Credit
You have a credit limit that affects how much you can borrow; it is typically based on your creditworthiness.
Debit
You can access only the available money in your account; otherwise, you may face potential fees.
Did you know?
Choosing the right credit card is dependent on what you want to get out of it. It’s important to consider the potential fees, penalties and annual percentage rates (APR), as well as the benefits of each.
The effect of credit and debit on your finances
You may find it easier to manage day-to-day finances with a debit card because you can only spend the money available in your bank account. At the same time, it’s also worth considering the credit-building potential of using a credit card.
Spending
Credit
You can make a purchase even if you don’t have available funds at the time of purchase, so it can be easy to go over budget.
Debit
Spending limits are pretty concrete—which may help you to keep to your budget.
Potential charges
Credit
In general, interest is charged if you don’t pay your balance in full. You may also be charged for making late payments.
Debit
There are no interest charges. But you may be charged fees for spending more than what’s in your account.
Perks
Credit
Many cards offer rewards, such as frequent flyer miles, points, cash back or gift cards.
Debit
In addition to using your debit card in stores and online, you can also access cash from your checking account at ATMs or through cash back when making purchases.
Credit score
Credit
On-time payments could bolster your credit score.
Debit
It doesn’t affect your credit history, so using it won’t help or hurt your credit score.
Quick tip
Paying off your credit card balance monthly can help you keep your finances in order and improve your credit score.
Security and fraud protection for your cards
Most credit and debit cards offer you some protections against unauthorized purchases. However, it’s important to monitor charges on both cards regularly.
Fraud protection
Credit
Since funds aren’t withdrawn immediately, you may be protected from fraud or theft. If you misplace your card, you may be able to temporarily lock it via Mobile or Online Banking.
Debit
You may be asked to enter a Personal Identification Number (PIN) to authorize purchases. If you misplace your card, you may also be able to temporarily lock it via Mobile or Online Banking.
Reimbursem*nt
Credit
You may be reimbursed for goods that are damaged in transit.
Debit
If goods are damaged, you will likely need to deal with the merchant.
Liability if lost or stolen
Credit
Most cards have $0 liability protection for fraudulent purchases. You may report the theft or loss in a timely manner to dispute fraudulent charges.
Debit
Some debit cards offer $0 liability protection. Otherwise, you may pay a maximum of $50 if you notify the bank within two days of learning the card is missing. After that the liability may increase to $500. Notice must be given within 60 days of your statement being sent to you. After 60 days, the liability is unlimited.1
- Federal Trade Commission.
* Notify Bank of America within a reasonable time of the unauthorized use or the loss or theft of your card, card number, or PIN. Certain restrictions apply. Consult your account documents for details.
Disclaimer
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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management. ©2024 Bank of America Corporation.
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