What Are Debit Cards? What Are Credit Cards?
What Are Debit Cards?
sometimes known as “checking cards.” Any time you use a debit card to
buy something, money is deducted from your account — usually on the same
day, if not immediately. For example, if you have $1,000 in an account
and spend $30 using a debit card, $30 is removed from the checking
account, leaving behind $970. With a debit card, you can really only
spend the money you have available to you. If you only have $970 left,
spending any more than that may result in an overdraft charge.
transaction, you must use your personal identification number, or PIN,
to approve the transaction. When you use a debit card for a credit
card-like transaction, you will normally have to sign a receipt (in the
U.S.). However, signature requirements are being phased out in favor of
PINs, so soon there will be no difference between the experience of
using a debit card for a debit or credit transaction.
What Are Credit Cards?
account. Instead, they are tied to a financial institution, such as a
bank or credit company, that is in the business of issuing revolving lines of credit
to consumers. Whereas a debit card transaction is mainly between the
buyer and seller, a credit card transaction specifically involves a
third party: the institution who has loaned money to the buyer.
you are not directly paying the grocery store. Instead, the grocery
store is paid $30 by the credit issuer. This is $30 that you now owe the
credit card issuer.
you have in your checking account, which can be one of the major cons to debit cards
for many consumers. Instead, you are limited by whatever the credit
limit on the card is. If you are new to the world of credit, a credit
card company may only issue you a card with a $1,000 credit limit. This
means you only have $1,000 of revolving credit to use. Some card issuers
increase credit limits over time for those who build up a good credit
history by paying off their credit card each month (i.e., paying back
debit card, especially for those with no credit history or a poor credit
history. When you apply for a credit card, the issuer evaluates your
creditworthiness to determine how risky it is to loan you money. If the
issuing company believes you are a poor credit risk, your application
for a credit card will be rejected.