What are three differences between a debit card and a credit card?

Understanding the Distinctions Between Debit Cards and Credit Cards

Debit cards and credit cards, while both plastic payment options, differ significantly in terms of their functionality, financial implications, and security features. Here are three key distinctions to consider:

1. Funding Source:

• Debit Cards: Debit cards are directly linked to your checking account, allowing you to make purchases up to the available balance. When you use a debit card, the funds are immediately deducted from your account.
• Credit Cards: Credit cards, on the other hand, rely on a line of credit extended by the card issuer. You borrow money to make purchases, which you then repay at a later date with interest.

2. Credit-Building Potential:

• Debit Cards: Debit cards do not offer any credit-building potential. Since you’re using your own funds, this type of card does not report your payment history to credit bureaus.
• Credit Cards: Proper use of credit cards can significantly contribute to building your credit history. Timely payments and low credit utilization demonstrate responsible financial behavior, leading to higher credit scores.

3. Fees and Interest:

• Debit Cards: Debit cards may incur fees for transactions such as ATM withdrawals, balance inquiries, or overdrafts. They typically do not charge interest on purchases, as you’re spending your own money.
• Credit Cards: Credit cards often come with annual fees, interest charges on unpaid balances, and late payment fees. The interest rate charged can vary depending on your creditworthiness and the card issuer’s terms.

Fraud Protection:

• Both debit cards and credit cards typically offer fraud protection if your card is lost or stolen. However, there may be differences in the liability limits and the steps required to report and resolve fraudulent transactions.