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What is the difference between a debit card and a credit card?

Published 26 October 2016 by

Open your purse or wallet and you'll see them safely nestled into the card slots – the various cards you carry around with you. These might include a debit or credit card, among the numerous loyalty cards you've managed to collect.

But do you actually know the difference between the types of cards you carry? In particular, should you use a debit or a credit card? They each have their own pros and cons and to help you get your head around them, we're going to take you through what they are.

Debit card

A debit card is directly linked to your bank, building society or alternative account and any money that you spend will be automatically taken from your balance. It's exactly the same process as withdrawing cash and handing it over to the cashier, only you hand over your debit card instead.

You will only be able to spend on a debit card if you have funds in your account or if you have an overdraft facility. Your card will be declined if you don't have any money or overdraft available.

You'll be able to use a debit card to withdraw money from a cash machine and pay in shops with a chip and pin service available. If your debit card is contactless, you'll be able to pay without entering a PIN for purchases of up to £30 at a time.

If you open an account with an alternative provider like thinkmoney, you’ll get a prepaid debit card. The thinkmoney Personal Account – a budgeting account that separates the money for your regular bills from your everyday spends – comes with a thinkmoney Prepaid Debit MasterCard.

This card works just like any other debit card but due to the nature of the account, it will only let you spend what’s in your account and doesn’t come with an overdraft. The card (just like the account) works this way so that you only spend what you've budgeted for, and don't face any overdraft charges.

Credit card

Separate from a debit card, a credit card isn't usually linked to a current account and works by allowing you to borrow money and pay it back at a later date. You can borrow up to a pre-set limit – this could be a lower limit or it might be up to thousands – and you'll usually have to pay this back on a set date every month to avoid any interest payments or missed payments charges.

In your monthly statement, you'll be able to see how much you've spent on your credit card. You’ll also choose whether to pay it all off in full, or make a minimum payment and then cover the rest later on. Remember though, you'll incur interest on anything that you don't pay off in full and you could damage your credit history if you don't keep up with payments.

With a credit card, you can withdraw cash from an ATM but you might face charges for this, and there’s usually interest to pay from the date of withdrawal.

You will typically face a credit check when applying for a credit card. This is why you might struggle to be accepted for certain cards if your credit history is not in the best condition.

In this case, you could consider a credit card like the thinkmoney Credit Card, you can pre check your application through QuickCheck.   

What's right for me?

There's no right or wrong answer as to whether you'll be better off with a credit or debit card. A debit card will help you access the money that you have in your account (or available to you in an overdraft), while a credit card could come in handy if you need a bit of extra cash after payday.

Just remember, with a credit card you'll need to be confident that you'll be able to repay what you borrow on time. Otherwise, you could find yourself struggling with repayments and damaging your credit history.

Ever wondered what the long numbers on your credit or debit card mean? We have the answers.

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