Debit and credit cards are a huge convenience for consumers, but do you know what the differences are and when you should use either one?
A credit card is a revolving line of credit that a bank or credit union issues to you. The cards can typically be used for online and in-person purchases, as well as for cash advances that can be done at various financial institutions. Your purchases are made ‘on credit,’ meaning that the financial institution is going to pay for it immediately, and you are responsible to pay the financial institution back in the terms outlined in your credit card agreement. Every month you will receive a statement that lists your transactions and the amount you owe. If you pay back the full amount borrowed by the due date, you don’t pay any interest. If you carry over a balance between statement periods, you will pay interest on that balance and if you don’t make a payment, you may be charged a late fee. Your payment history is also reported to credit bureaus and impact your credit score. Large, national banks offer credit cards that you’ve likely heard of – but many of those have very high rates tied to them. If you are considering a credit card, make sure to check out our low rates on credit cards!
Debit cards are cards that are connected to your checking and/or savings account. These typically work for in-person purchases and at ATMs, and can be used online as a credit transaction. When you conduct a debit transaction, you use your PIN and the payment is immediately deducted from your account. You must have the funds available to complete the transaction. If you don’t, the bank or credit union may cover the transaction that overdraws your account, but you may be charged a fee for that convenience and you are still responsible for the full amount of that purchase.
What if I’m asked Debit or Credit?
Sometimes, and more often with debit cards, the merchant may ask you if you want it processed as debit or credit. This happens because the debit card can be run as a debit or a credit transaction. A debit transaction, as mentioned above, requires a PIN. A credit transaction is covered by the financial institution for a short period of time until funds can be verified and the transaction posts to your account. Credit transactions, when done with a debit card, do not require a PIN.
Why would I use one over the other?
Both types of transactions are perfectly fine to do. However, a credit transaction is more secure for you because you don’t put your PIN into a terminal that has the potential to be compromised. Many small transactions at places like drive-thrus and cafes will automatically process transactions as credit because they either don’t have a PIN pad for you to type on or they need to keep the time per transaction down to accommodate more customers. It’s really up to you and your preference. The transaction will be processed by the financial institution either way.
Questions? Saco Valley Credit Union is here to help. Call 207-282-6169 to get started with a debit or credit card today!