Credit cards versus Debit cards. What is the difference? Both credit and debit cards are essentially providing the same features of spending money online or in-store, avoiding cash exchanges, however, they differ in the way their users spend money. While debit cards allow its users to withdraw and deposit money in a bank account, credit cards allow their users to also withdraw or spend more than what they have deposited (up to a certain limit) on the premises that the sum will be paid back in full across a period of time. The reason many people opt for a credit card is that it allows building a credit history, which further increases the chances of securing a loan or mortgage. In order to build a good credit score, a user must have an active credit card and pay back all the money that has been withdrawn at regular fixed dates. Moreover, credit cards are more secured against fraud and may often offer additional perks such as discounted insurance, warranty and purchase protection.
There are four different types of credit cards:
- Standard cards provide a simple line of credit for their users to spend and transfer money.
- Rewards cards offer cash backs, reward points, travel points and other benefits available to the customer, depending on each provider.
- Secured credit cards are similar to standard, but require an initial cash deposit which is held by the user as collateral.
- Charge cards that differentiate from the standard for having no spending limit, but often require a monthly clearing of debt.