What is differences between credit card and debit card in banking system?
A credit card and a debit card are two types of payment cards that are commonly used in the UK. Although they may appear similar and may perform some of the same functions, there are several key differences between them that make them suitable for different types of transactions.
A credit card is a type of loan that is issued by a bank or financial institution. When you use a credit card, you are essentially borrowing money from the card issuer to make a purchase. The amount you borrow is then repaid over time, usually with interest and other charges added. Credit cards typically come with a credit limit, which is the maximum amount you can spend using the card.
In contrast, a debit card is linked directly to your bank account. When you make a purchase using a debit card, the funds are taken directly from your bank account. Debit cards do not have a credit limit, as you can only spend the money that you have in your account.
Another key difference between credit cards and debit cards is the way they are used. Credit cards are primarily used for making purchases on credit, while debit cards are used for making purchases and withdrawing cash from ATMs. Credit cards are also often used to make larger purchases that are paid back over time, while debit cards are used for everyday transactions.
Another major difference between credit cards and debit cards is the level of protection they offer in case of fraud or unauthorized transactions. Credit cards typically offer a high level of protection for consumers, as the card issuer is responsible for covering any unauthorized transactions. In many cases, you will not be liable for any fraudulent transactions if you report them promptly. Debit cards, on the other hand, offer less protection, as the funds are taken directly from your bank account. If your debit card is lost or stolen, you may need to take immediate action to prevent unauthorized transactions, and you may be liable for any unauthorized transactions that occur before you report the card as lost or stolen.
Credit cards also often come with additional benefits, such as rewards programs and cashback offers. These benefits are designed to encourage customers to use their credit cards more often, and can include cash back on purchases, discounts on travel, and other perks. Debit cards, on the other hand, do not typically offer these types of benefits.
Another difference between credit cards and debit cards is the way they are processed. Credit cards are processed through a different system than debit cards, and the processing time for a credit card transaction is generally longer. This is because credit card transactions must go through a series of checks to verify the validity of the card and the availability of funds, while debit card transactions are processed directly from the customer's bank account.
Finally, credit cards can be useful for building and improving your credit score, while debit cards do not have an impact on your credit score. Your credit score is a measure of your creditworthiness, and it is used by lenders and other financial institutions to determine your eligibility for loans, credit cards, and other financial products. By using a credit card responsibly and making your payments on time, you can build and improve your credit score, which can make it easier to access credit in the future.
In conclusion, credit cards and debit cards are both useful payment tools, but they serve different purposes and offer different benefits. If you are looking for a way to make purchases on credit, or if you want to build and improve your credit score, a credit card may be the better option. On the other hand, if you are looking for a convenient way to make purchases and access cash, a debit card may be a better choice. Regardless of which type of card you choose, it is important to understand the features, benefits, and limitations of each, so that you can use them.