Debit cards and credit cards: what’s the difference?
Money: love to hate it, hate to love it. But either way, managing your money is crucial if you’re living and working abroad – especially if you want to build a bright and stable financial future in your new home. In this article, we’re going to take a look inside our wallets at two different types of bank card that look almost identical. Both have 16-digit card numbers, expiration dates, magnetic strips, and EMV (Europay, MasterCard® and Visa®) chips - what are they? Debit and credit cards, of course.
While these cards may look similar, and carry out similar functions, there are fundamental differences in the way they work. And these can have very serious, arguably life-changing, implications.
While debit cards work by withdrawing your own money, saved in an account, credit is essentially a form of borrowing. Credit cards operate on the premise of monthly repayments – and missing these can have significant consequences. Ranging from fees to higher interest rates to a damaged credit score.
‘Credit’, as a concept, is often perceived differently across different countries, and cultures. Some people are cautious regarding the dangers of credit, while others embrace its capacity to open doors, and enable upwards financial mobility. Regardless, credit comes with great responsibility, and a score. This score measures and communicates to lenders exactly how financially responsible you are.
If you’re moving to live and work in a new country – particularly one where credit is required to prove financial trustworthiness – it’s important to know what you’re dealing with. So, let’s start by looking at the differences between debit and credit cards – and then look at the pros and cons of utilising each one.
L'équipe éditoriale WorldRemit
• 3 mins read • Updated
What is a debit card?
A debit card is pretty simple. It’s linked to your bank account, and you can use it to spend your money and withdraw cash from ATMs.
Debit cards allow you to spend the money you’ve saved – unless you have an arranged overdraft, which is a form of borrowing with interest rates and charges. This type of bank card works using VISA technology, an international leader in digital payments. This means you can use your card worldwide, wherever you see the VISA symbol (some banks do charge for using a debit card abroad, though, so be sure to check).
Debit cards also operate using contactless payment technology, allowing you make contactless payments (without entering your pin) up to the value of £100. This also gives you the freedom to integrate your card with Apple Pay or Google Pay.
Typically, debit cards have a daily cash withdrawal limit of £500 – although this can usually be changed by liaising with your bank directly. With a debit card, you also have the ability to set-up automatic one-off or recurring payments from your bank account – these are known as ‘direct debits’.
What is a credit card?
A credit card is slightly more complicated than a debit card. It works by drawing money from a standalone account, which gives you access to credit that you use, and pay back later. Credit accounts come with pre-arranged limits – exceeding these limits will incur fees.
Similarly to debit cards, credit cards allow you to set up regular payments. They’re also contactless, allowing you to make smaller transactions without entering your pin.
There are a number of different types of credit cards available, offering different benefits to users. These include:
Rewards credit cards
These cards give you reward points as you use them (as long as you use them responsibly). These points can then be used to redeem cashback, vouchers, or airmiles – especially useful if you’re travelling long distances to see loved ones back home.
0% purchase credit cards
With this type of credit card, you can spread the cost of items across a period of time, interest-free.
Balance transfer credit cards
This type of card gives you the flexibility to move your balance across cards and accounts (this can help save money on fees).
Credit builder cards
As the name suggests, this type of card is specifically designed to help you build your credit score. (This can be especially useful if you’re new to a country, and want to establish and scale your credit score more quickly).
Debit card or credit card: which one should I use?
As we’ve seen, the main difference between a debit card and credit card is that credit cards give you access to a line of credit issued by a bank, with interest rates on monthly repayment terms.
But one card is not necessarily better or safer than the other. In fact, both should be used together, in tandem, as financial tools for building a brighter, more stable financial future.
Sure, debit cards allow you to budget – giving you access only to the money you have in your account. This limits your spending, and prevents any (witting or unwitting) spending sprees. However, a debit card doesn’t build your credit score. So, it’s best to use a credit card responsibly alongside your debit card. That way you can manage your money, and build your score – essential for the bigger purchases in life, like buying a house or car.
Credit cards are also immensely useful when it comes to making larger purchases – paying for flights, for instance – as they give you the freedom to spread the cost across a number of payments. This also gives people greater financial mobility – without being slapped with impossibly huge single payments.
It’s worth mentioning, too, that some retailers won’t accept certain credit cards – and others won’t accept credit cards altogether. Some may charge a fee for credit card transactions. If you’re interested in taking out a credit card, speak to your banking provider – but be sure to shop around for the type of card that best suits your goals.
Credit cards are a great financial tool when used responsibly, and can help shape exciting tomorrows. But remember, credit is never free money – it always comes with a cost.
Make a world of difference with WorldRemit
For more articles like this, head over to our blog. You’ll find a selection of financial pieces, put together especially for people living and working abroad.
And, if you’re sending money to loved ones back home, we can help. At WorldRemit, we accept both debit and credit card payments – and our service is fast, reliable, and our low fees will save you money, too.
So, why not sign up to WorldRemit, and make a money transfer today?
The contents of this blog post do not constitute legal or financial advice and are provided for general information purposes only. If you require specific legal and / or financial advice you should contact a specialist lawyer or financial advisor. Information true at time of publishing.
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