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

While you can use both a credit and debit card to pay for purchases online and at the shops, there are some key difference worth knowing. See when it may be better to use one instead of the other.

Quick definitions

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.

Credit card

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

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.

Book holidays and travel

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

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 with credit, which is important if you ever want to apply for a mortgage, or take out a loan. The higher your score, the more likely you’ll be to qualify for the best deals and lowest interest rates.

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 funds 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 almost always 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 pay it off as soon as possible.

Keeping a lid on your spending

A credit and debit card allow you to keep an eye on exactly how much money you’ve spent, and you can usually check this at any time through online and mobile banking. 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.

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