When they were first released, debit cards were confusing to many Americans. They resembled credit cards, fit into wallets and purses in the same way as the traditional cards and could be swiped at restaurants, gas stations and department stores. There are a wide number of differences between credit and debit cards, however, and the gap between the two is changing all the time.
Credit cards are issued by banks, department stores and private companies such as MasterCard, Discover, American Express and others. Consumers who wish to have credit cards must apply for them using information such as their names, current and previous addresses, income and more. Once a company receives the application, it is processed, the applicant’s credit is checked and the consumer is either confirmed to receive a card or has the request denied.
If approved, a potential buyer is given a credit limit, and may not spend more than that amount on the card at any time. For example, a shopper with a £10,000 credit limit may spend money on the card several times a day for months, or even years, as long as that limit is not reached. Monthly payments on items bought with a credit card must be made. One thing to keep in mind is that all credit cards accrue interest, as well. There are very few 0% credit cards out there, but some do exist. Many credit cards also charge the user an annual fee just to have the card, regardless of whether or how often it is used.
A debit card looks similar to a credit card but is completely different. Whereas a credit card entitles the user to money he or she does not actually possess, a debit card is tied directly to a user’s bank account and immediately accesses the funds in it. A person cannot spend more than he or she has in the bank at any one time using a debit card without his or her account being charged overdraft fees, similar to bounced checks.
Up until recently, both debit and credit cards were frequently tied to reward programs. Banks and other institutions that issued them tended toward issuing cash back for every dollar spent or points that could be saved up and traded in for big-ticket items. While many credit card providers still use cash back incentives and other bonuses, such as frequent flyer miles, many debit card companies and banks have backed off of using such rewards.
There are positives and negatives to having both debit and credit cards, and it is up to each particular person whether or not to take advantage of any card offered. While many Americans claim they cannot survive without their plastic cards, a great number of others have gotten into dire financial straits by mismanaging their funds with either type of card. Still more, conversely, maintain excellent financial stability holding both debit and credit cards. As with anything else in life, success with your individual credit lies in how you care for it.