Do Debit Cards Work Like Credit Cards?
- When you use a debit card to make a purchase, the merchant requests payment for your purchase directly from your bank, which then pays the debt using money in your checking account. Because debit cards work like checks, they are often referred to as "check cards." Credit cards, however, do not require you to have the money on hand before making a purchase. Rather than paying the debt using money you already have, a credit card company bills you for your purchases at the end of the month. You can opt to pay your total debt at once or pay a portion of your charges each month over a period of time.
- While a debit card gives you the ability to pay for items quickly using money you already have, debit cards do not help you build credit in the same way that credit cards do. Credit card providers report your account, your balance and your payments to the credit bureaus. Banks, however, do not report your checking account balance and purchases to the credit bureaus. This information is private. In addition, using a debit card only reflects the fact that you are withdrawing money from your checking account. It does not signify positive debt management skills in the same way that responsible use of a credit card does. Therefore it does not appear on your credit report and does not help you build good credit.
- When you use your debit card to pay for a purchase, you have the option to run your card as either a debit or credit transaction. This does not mean that you can use your debit card as a credit card. Debit card transactions typically cost the merchant slightly more to process than credit transactions and, when you opt to run a debit card as "credit," the transactions takes longer for your bank to process. The payment, however, deducts from your checking account regardless of whether you select debit or credit at the payment terminal.
- Using your debit card may not help you build credit, but it can help you save money. Credit card companies charge consumers interest on the purchases they make and on any outstanding balance they choose to carry. In addition, if you go over your credit limit when making purchases, you face additional fees from the card provider. You do not face interest charges when using your debit card. The fees for debit transactions are covered by the merchant -- not the consumer. While overdraft fees are possible should you spend more than your checking account contains, you have the option to choose overdraft protection. This protects you from overspending and eliminates any risk of unexpected fees when using your debit card.