It's common to get them confused. Credit cards and debit cards both have a MasterCard or Visa logo, both have the magnetic stripe, both are the same handy size. But they function in vastly different ways, and before you use them, you should understand the pluses and minuses each has to offer. Their names provide some clues. When you use a debit card, a "debit" (or charge) against your bank account is automatically issued. However much money you spend with a debit card that much is instantly taken out of your checking or savings account. There is no borrowing involved; you're only spending money that's already yours. A credit card, meanwhile, is like a miniature loan. You're borrowing money from a lender, and you'll have to pay it back -- with interest. There are often fees, too, which debit cards do not have. A debit card stops working when you run out of money, so you have to keep track of your balance on your own. A credit card, meanwhile, may have a credit limit of thousands of dollars, so you don't have to pay as close attention to how much credit you have left. They can offer instant gratification, too, letting you buy things you couldn't afford if you had to pay for them all at once. One important difference is liability. Credit cards are governed by very tight liability laws. If someone commits credit card fraud against you, you're only on the hook for up to $50, no more, regardless of how much the thief spends. It can't count against your credit score, either. What's more, if you spot a charge you didn't make on your statement, you can insist that the lender investigate. On a debit card, you're liable for $50 only if you tell the bank within 48 hours of finding a suspicious charge, or if you report the card missing. After 48 hours, you're on the hook for as much as $500. If you let it go 60 days, you have to pay the entire amount used by the thief. So it's imperative with a debit card that you report it stolen immediately upon discovering it's missing, and to keep an eye on your statements for fraudulent charges. Another difference has to do with consumer protection. If you buy something that turns out to be shoddy or broken, you can refuse to pay for it and reverse the charge on your credit card. Your lender can even act on your behalf in settling the dispute with the seller. With a debit card -- you guessed it -- you're stuck. Your account is automatically debited, so the only way to get your money back is for the seller to voluntarily give it back. You're not entitled to anything from the debit card's standpoint. But of course the greatest difference between credit and debit cards is paying now versus paying later. If you've had problems in the past with credit cards, perhaps even resulting in lower credit scores, you might be wise to switch to a debit card. That limits your spending to the amount of money you actually possess. If you have the willpower and discipline, though, you can use a credit card to help establish good credit history and to keep your credit report and score clean. You can also use your card to earn travel points, cashback bonuses, and other rewards. So choose wisely. Use the credit card carefully, paying off your balance on time and in full (if possible) each month, and keep your credit score high.
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