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Using a Debit Card vs. a Credit Card

To the casual observer, it would seem there really is no difference between a debit card and a credit card. There actually is a tremendous difference in terms of the underlying account that establishes the cards. In terms of how the cards are used in a business, there may as well not be a difference.

The main similarity between the two is they are both used as a substitute for cash. The main difference is one actually really is using cash and the other is a loan.

A debit card draws money from an account. Most commonly, the account will be a checking account. So, if there is $1,000 in the account and a $50 purchase is made with a debit card, $950 will remain in the account. Using a debit card is like using a check that automatically clears. Since the debit card processing services immediately accessing the bank that issued the debit account, there is no waiting period for the funds to clear. This makes the debit card much better to use than a check in many ways.

A credit card reflects a line of credit issued to the card holder. When someone uses a credit card to make a purchase, the merchant is being issued funds by a bank or other financial institution. The person making the charge will then have to pay back the money advanced by the bank.

When the time comes to run either a credit card or a debit card through the processing device, there is really no difference. At one time, debit cards could only be used at an ATM machine. Now, these ATM cards have agreements with VISA and MasterCard where they can be processed through any merchant set up to accept credit cards. A debit card purchase can be completed once a pin number if entered or it can be run through in a manner like a credit card. That means a credit card slip must be signed. Most merchants will prefer the pin number is used since this will save a lot of time. In addition to not having to request a slip is signed, there is no need to ask for an ID.

For the consumer, there is another huge benefit to using a debit card. Since the payments are really cash in another form, no large credit card balances are accrued. For those wishing to stay out of debt, this is a good thing.


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