Credit cards and debit cards are two modes of payment that have become important realms of trade and commerce across all industries and sectors. The best part about both these payment channels is the common benefit of convenience that they provide to people all over the world. Both, credit cards as well as debit cards have emerged as efficient alternatives to cash and check payment in the modern scenario. The only question that persists is, ‘Which of the two is better?’

Working of credit cards and debit cards

Talking about credit cards, credit is involved in this payment system just as the name suggests. The card holder swipes the card for the purchases that are made at the point of sales. The amount of the purchase is received by the merchant from the credit card issuing company. The issuing company provides the card holder with a time period in which the concerned amount is to be paid back. To sum it up, this is how the credit card system works everywhere.

Coming to debit cards, it is yet another payment mode where no credit is involved. The processing of payment in a debit card system is quite similar to the way in which it works for the credit cards. The card holder has to swipe the debit card at the point of sales in order to pay for the purchases and then the respective amount is transferred to the merchant’s account. The only difference as compared to credit cards is the fact that the money which is transferred completely belongs to the card holder; the issuing company is not paying any money on behalf of the card holder. This is the way in which a debit card payment is processed.

Comparing the two

While using a credit card, a benefit that it provides is the grace period within which the payments are to be made. But on the other hand, if the dues are not paid off by the card holder before the due date, an interest is charged on the amount taken as credit. In case of debit cards, the amount that is paid or rather transferred to the merchant’s account totally belongs to the card holder. There is no credit involved in the transaction, so, there is no question of interest charges arising. But, because there is no credit given to the card holder, only the balance amount in the account can be utilized. Whereas, unlike debit cards, a credit card holder is provided with a credit limit.

Another difference between credit and debit cards is the system of cash advances. A credit card holder can take cash advances against the credit card. But, in this transaction, the interest on the amount borrowed as an advance starts immediately. On the other hand, the debit card can also be used as an ATM card in most cases. In this way, cash can be withdrawn from the ATM whenever required and without any interest at all. Also, a debit card holder can take secured loans against the debit card for a short period of time during an emergency requirement of cash. After the given time span to pay back these loans, interest is charged as per the decided rate of interest.

An advantage of debit cards is the fact that anyone can apply for one even in case of bad credit. The credit rating and score of the applicant does not come into question when acquiring a debit card. Whereas, while applying for a credit card the issuing company checks the credit history and rating of the customer. If the required parameters are matched by the applicant, the credit card is approved. Another point associated with the credit rating emerges when the card holder fails to pay off credit card bills even after the grace period. This situation has an adverse effect on the credit history of the card holder which can prove to be a hindrance to acquire loans or mortgage in the future. As there is no involvement of credit in debit cards, the possibility of credit rating being downgraded is very less likely.

A common benefit that can be found in both, credit cards as well as debit cards is the gifts and rewards. There are special types of credit cards called as reward credit cards which provide the card holders the opportunity to earn reward points on purchases. These points can then be redeemed for various gifts such as hotel stays, air tickets, jewelry and much more. Such schemes are also available with some debit cards wherein the customer can earn points according to the spent amount and redeem them later. Even cash backs are provided by issuing companies as reward offers in both these cards.

Which is better – credit card or debit card?

Credit cards and debit cards both have few advantages as well as disadvantages. A credit card can be a better option for some people compared to debit cards. Whereas, some people might not qualify for a credit card and in this case the debit card is the only suitable option towards plastic transactions. Claiming one of these two as having an upper hand over the other is indeed very difficult. Whether to apply for a credit card or a debit card actually depends on the requirements of the customer and the situations facing that person. Both these cards stand tall and useful at their respective places and one of them cannot be termed as superior to the other.