Business Activity | The key difference between Debit And Credit Cards | @ronindboss

Credit and debit cards has been the easiest method to buy and spend without use of cash, it saves the stress of carrying and budgeting cash used for spending. Although there are similarities in the two types of cards, they both have a 16 digit card numbers, Emv chips and identical. The difference is that credit card allows a user to borrow money from the card issuer which he/she can use to withdraw cash or purchase items while Debit cards allows user to spend money by using funds that was deposited in bank accounts. Let's dive deeper into this topic by exploring there differences...

What Is a Credit Card?

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Credit Cards are financial cards issued by any banks or institute that enables a user to borrow and spend funds while having the intention of paying back later. The cardholder will sign a contract Will make him/her pay back the money with interest depending on the type of institution. Credit Cards can be issued to a user in any of the following category below.

• Balance Transfer Cards

It has a low interest rate and fees on transfer from other credit cards. It's simply a saving type of credit card.

• Premium cards

Thus card gives special features to users, it comes with luxurious services that includes Airport lounge services, Concierge Services and many other VIP services. It usually has a higher interest/annual rate.

• Rewards cards

This type of card grants user special perks depending on how they spend with it. It includes travel points or any other benefits that comes with it.

• Standard cards

This is just a normal credit card issued to most users, it's used on Transfers, Purchases and/Or Cash advances. It doesn't have an annual fee.

Pros Of Credit Cards

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Credit Cards has brought a lot of benefits to the financial sector, but it does have it downsides too. Here's an indepth look at the pros and cons of using credit cards.

• Rewards Points To users

Credit Cards can reward points on cardholders based on high usage of the cards and payment of loans, these points grants user special access to some features when using the cards for events.

• They’re More Secure Than Cash

Using credit instead of cash can save the user from dangers of thieve and robbers, since the funds are not physically present and stored in a Cyber space, the user will have a peace of mind.

• It's a Great Way to Build Credit

Building credit is a way of keeping good records in paying back your loans, and if a user records are good, then the bank gave give rewards or discounts to that user as a valuable customer.

• Warranty and Purchase Protections

Credit Cards has more warranty than debit cards, if any purchase or transaction was mistakenly carried out, it's covered by the bank insurance and funds can be retrieved back.

• Fraud Protection

Since Credit Cards are mostly issued by banks, it has a more secured system that prevent users from fraudsters and scammers.

Cons of credit cards

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• It can lead to Debts if not used carefully

Over usage of credit cards can lead to high debts if the card holder doesn't keep track of his/her spendings. It's always advisable to use a substantial amount only when needed for essential things e.g Food, Bills

• Interest and Fees rate are high

Credit Cards offer a ridiculous amount of interest if not paid on time. If the cardholder refuses or forgot to pay on time then it will automatically add some charges based on late payment. It's advisable to always pay on time when using credit card.

• High Cost of Borrowing

Using a credit card to borrow loans comes with a high APRs( Annual interest rate charged in borrowed funds), and it can rise exponential if not payed on time.

- Credit Score Can be damaged if credits are paid late

Credit Score are points given to users based on their early payment of loans, if users fail to pay early then it could affect their credit score which will limit them from borrowing more credits.

What Is a Debit Card?

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Debit cards are financial cards issued by banks that enables a user to spend and make payments by using money that was deposited in the bank account. Debit card are mostly issued by Payment processor like Visa or Mastercard and is mostly used than credit cards.

There are three types of debit cards that can be issued by banks or any institution. Which includes:

• Standard Debit Cards

These are normal debit cards that are issued by banks and institution, it uses the money that was deposited in an account for spending and purchasing.

• Prepaid debit cards

This type of debit card can be issued without a bank or institution, it's a third party debit card that allows user to spend the money that was preloaded on it.

• Electronic benefits transfer (EBT)

These type of debit card are normally issued by federal agencies that allows the cardholder have the luxury of making purchase that will reflect on the agency's account.

Pros of Using Debit Cards

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Just like credit cards, debit cards has it own advantage and Disadvantages which I'll sum up below.

• Avoiding Debt

Since Debit Cards only use money stored in an account, it disabled the feature of using credits and loans which can help the cardholder abstain from unnecessary debts. By using debit, it prevents it's user from temptation of credit and managing their budget.

• Annual Fee Is Limited

Another advantage debit card has to offer is it's limitation of fees, there's no fee for withdrawal when using a debit card, instead you'll be given a steep interest rate.

• Fraud Protections

Since Debit Cards are issued by high ranking payment processor e.g Mastercard/Visa, it's more protections for it's cardholders.

Cons of Using Debit Cards

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• No Rewards

Debit Cards don't offer points/rewards like credit cards, since money being used was initially deposited by you and not by loan, there's no special features given to the cards.

• Fees

Debit cards don't come with Annual fees but there are other fees included in the account linked to the card. These fees include, Maintenance fees, ATMs fees etc. Fees mostly comes up when the debit card is used on another bank or institution.

• No Credit Score

Credit score can give special treatment to credit users but it's not available in debit cards because money being used was deposited by the user. These credits Score are what the banks used to lure users in taking more loan for special treatment but if it's a debit card then it's not acceptable.

key difference between Debit And Credit Cards

Credit Cards	Debit Cards
Funds are issued by banks	Funds are deposited by users
Has special features like discounts and points	It reduce accumulation of loans and debts
Helps user build credit score	credit score is unavailable
Interest rates are high and can vary	no interest rate
Has fraud protection by banks	Has fraud protection by ranking institution

Conclusion

The utilisation of any of these cards can depend on the type of user, before issuing for card, do some analysis to see which one meets your needs and capability. I hope you learned something from my post. Thanks for reading...⭐

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