What is credit card and debit card?

A credit card and a debit card are both payment cards that can be used to make purchases or payments. However, they work differently and have different features and benefits.

A credit card allows you to borrow money from a financial institution or lender to make purchases or payments. When you use a credit card to make a purchase, the financial institution pays the merchant on your behalf, and you are required to repay the lender the amount borrowed, plus interest and fees, over time. Credit cards typically have a credit limit, which is the maximum amount you can borrow at any given time, and they may offer rewards or benefits for using the card to make purchases.

A debit card, on the other hand, allows you to access money from your checking account to make purchases or payments. When you use a debit card to make a purchase, the funds are deducted directly from your checking account. Debit cards do not require you to borrow money, and they typically do not charge interest or fees. However, they may have daily spending limits and may not offer the same rewards or benefits as credit cards.

Here are some key differences between credit cards and debit cards:

  • Borrowing money: Credit cards allow you to borrow money, while debit cards do not.
  • Credit limit: Credit cards have a credit limit, while debit cards do not.
  • Interest and fees: Credit cards charge interest and fees on the amount borrowed, while debit cards do not.
  • Rewards and benefits: Credit cards may offer rewards and benefits, while debit cards may not.
  • Risk of overspending: Credit cards may make it easier to overspend and accumulate debt, while debit cards only allow you to spend the money you have available in your account.
  • Impact on credit score: Using a credit card responsibly can help you build a positive credit history and improve your credit score, while using a debit card has no impact on your credit score.

Ultimately, the best type of card to use depends on your personal financial situation and spending habits. If you can use a credit card responsibly and pay off your balance in full each month, it may be a good choice to take advantage of rewards and benefits. However, if you prefer to avoid debt and overspending, a debit card may be a better option.

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