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Credit cards vs debit cards: What's the difference?

A credit card lets you borrow money to repay later, whereas a debit card uses the money from your bank account straight away.

While you can use both credit and debit cards to pay for purchases online and in shops, knowing some of the key differences could save you money.

See when it may be better to use one instead of the other.

What is a debit card?

When you use a debit card, you’re spending your own money. The money automatically comes out of your bank account and you won’t be charged interest to use it.

Keep in mind – if you make a withdrawal, or purchase, that takes you below your available balance in your current account, you'll go into an overdraft and may be charged interest for using it.

What is a credit card?

When you buy something using your credit card, you’re borrowing money from your credit card provider to repay later. You may be charged interest on what you owe if you don’t clear your balance in full each month.

Credit cards also have a credit limit – the maximum amount you can borrow on that card at any one time. You may be charged a fee if you go over your credit limit. 

There are different types of credit cards, including:

When may it be better to use a credit card?

If you’re able to pay off your debts without being charged interest, using a credit card has some advantages over a debit card.

Buying big-ticket and electrical items

As well as enabling you to spread the cost of big purchases, a credit card gives you more protection than a debit card.

Your card provider is jointly liable with the retailer so, if the goods are faulty or the company goes bust, you’re entitled to claim your money back. Under Section 75 of the Consumer Credit Act, you may be covered for purchases between £100 and £30,000.

Booking holidays and travel

Some hotels, airlines and hire car companies may only accept credit cards for reservations and bookings. You may also have extra protection under Section 75.

Explore: 6 tips for using your credit card overseas

Shopping to earn rewards

Some credit cards offer rewards, such as cashback and frequent flyer points. Each time you make a purchase, you’ll earn points. Points can be exchanged for rewards, such as shopping vouchers and flights, as well as discounts on fuel and family days out. The more you spend on the card, the more you can save – as long as you always clear your balance each month.

To improve your credit score

Using credit regularly and paying off your balance in full each month helps to improve your credit score. Having a good score shows lenders you’re responsible at repaying debt, which is important if you ever want to apply for a mortgage, or take out a loan. 

Explore: 5 reasons to care about your credit score

When may it be better to use a debit card?

Anyone who has a current account will have a debit card. It gives you quick access to your money and enables you to pay bills, shop and check your balance. But when should you use it ahead of a credit card?

Withdrawing cash

Always use a debit card to withdraw money from a cash machine. It’s usually free in the UK. If you use a credit card to withdraw money, you’ll be charged a fee. You’ll also be charged interest on the money, even if you repay your balance as soon as possible.

Keeping a lid on your spending

Whether you’re using a credit card, a debit card or both, you can keep an eye on how much you’re spending through online and mobile banking, as well as monthly statements. However, credit cards aren’t ideal for everyone – especially those who may be tempted to spend beyond their means.

Using only a debit card for your day-to-day spending can help prevent you from racking up serious credit card debt. If you pay for everything with a credit card, you might not notice the debt mounting up.

Explore: How to manage your spending habits