At the surface level, credit and debit cards can seem similar. Both usually have a card number, expiration date, and a CVV code. They are issued by financial institutions, often branded with major payment networks like Visa^® and Mastercard^®, and can typically be used for in-store and online transactions. Credit and debit cards are widely adopted by U.S. consumers—according to the Federal Reserve Bank of Atlanta, 90% of Americans had a debit card in 2023, while 82% had a credit card^[1].

Despite their similarities, the two types of payment cards are two distinct financial products. In this credit card vs. debit card comparison, we’ll explain how each type of card works, its pros and cons, and when it is best to use one over the other. You’ll also learn about virtual cards and how they boost your financial data security online.

What Is a Credit Card?

A credit card is a type of payment card that allows you to borrow money from a financial institution for purchases or cash withdrawals. When you use a credit card, you are essentially taking out a short-term loan from the card issuer, with the agreement that you will pay back the amount borrowed along with any applicable interest and fees.

How Does a Credit Card Work?

When you are approved for a credit card, the bank or credit union will assign you a line of credit, which is the maximum amount that you can borrow at any given time. The limit can vary depending on factors such as your credit score, income, and credit history.

Each time you make a purchase with a credit card, the issuer pays the merchant on your behalf and adds the amount to your credit card balance. Most credit card issuers operate on a monthly billing cycle and will send you a billing statement that shows your balance, the minimum payment, and the due date. 

You have two options for paying off your credit card balance:

1. Make the minimum payment, which will result in accruing interest on the remaining balance. 
2. Pay off more than the minimum to minimize interest charges. 
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Interest rates can vary from 0% to over 20%, depending on your card issuer and creditworthiness. That’s why it’s important to pay as much of the balance as you can each month. If you don’t manage to settle even the minimum payment, you can be subject to late fees and additional measures.

What Is a Debit Card?

A debit card is a payment card that's linked to your checking or savings account. Unlike a credit card, you are not borrowing money when you use a debit card. Instead, the transaction amount is deducted from your account balance. 

How Does a Debit Card Work?

When you transact with a debit card, the merchant requests authorization from your bank or financial institution. If there are sufficient funds in your account, the transaction is approved, and your bank account is debited for the purchase amount. If there are insufficient funds, the transaction may be declined, or it could result in overdraft which might come with fees depending on your account type.

Since you use your own money when using a debit card, no interest is charged on the amount you spend. However, some banks may charge fees for certain types of transactions or for using your debit card at an ATM that is not affiliated with your bank.

What Is the Difference Between Debit and Credit Card?

The source of funds and its implications are the main difference between a debit and a credit card. However, they’re not the only aspects that set the two payment methods apart. Other differences include:

When To Use a Debit Card vs. Credit Card

Ultimately, the decision to use a credit or debit card depends on your financial situation and spending habits. Even so, there are several instances where using one card type may be more advantageous.

Using a credit card might be more appropriate for:

• Making large purchases—Credit cards allow you to spread out the cost of a large purchase over time without immediate interest if the issuer allows installment payments. Even then, you might still incur interest, though at a lower rate. Some cards offer a 0% APR grace period, letting you pay the minimum amount without interest. 
• Taking advantage of reward programs—You can choose a credit card with a reward program that meets your spending habits and lifestyle. 
• Credit building—If you're looking to build or rebuild your credit, using a credit card responsibly by making timely payments, keeping your balance low, and not maxing out your credit limit can help improve your credit score.
• Emergencies—Access to a credit card can be a practical solution in case of an emergency, especially if it's a low-interest card or a card with a grace period. Still, setting up an emergency fund (at least 3-6 months of expenses) is important to avoid relying on credit cards for unexpected expenses.

You should use a debit card if you:

• Need cash quickly—Using a debit card at an ATM is significantly less expensive than making a cash advance on a credit card.
• Struggle with debt—Using a debit card can help you avoid accruing interest charges as you're limited to the amount of money in your account.
• Want to stick to a budget—Paying for groceries, gas, and utilities with a debit card can help you stick to your budget and avoid overspending.

Heighten the Security of Payment Card Transactions

While both debit and credit cards offer significant convenience and security features, using one can still make you a target of payment card fraud. According to findings by Security.org, 52 million Americans experienced fraudulent charges on their credit or debit cards in 2023, with unauthorized purchases surpassing $5 billion^[3].

Fraudsters are using advanced methods to obtain card information and make unauthorized transactions, including:

• Skimming or shimming—Copying payment card information using hidden devices at point-of-sale terminals or ATMs
• Phishing—Tricking individuals into divulging sensitive information through misleading emails, texts, or phone calls
• Malware—Installing malicious software on computer systems to gather payment card details
• Data breaches—Exploiting security vulnerabilities to access large databases of personal information, including payment card data

Fortunately, virtual cards have emerged as an effective payment option for shielding sensitive financial information online. Virtual cards are randomly generated card numbers that allow you to make purchases without revealing your actual card information, protecting you from misuse in case a potential hacker infiltrates a merchant's database.

Popular banks such as Capital One^® and Citi^® offer virtual cards. However, you must have an account with them. Choosing an independent virtual card provider like Privacy gives you the benefits of robust security and advanced card controls without the need to have an account with a specific financial institution, as Privacy connects to many local and national banks.

Make Card Transactions Safer With Privacy

Privacy is a BBB-accredited^® virtual card provider serving over 250,000 Americans. After linking your debit card or bank account to Privacy, you can generate multiple virtual cards and use them at any online retailer that accepts Visa^® and Mastercard^® payments. 

Being PCI-DSS compliant, Privacy utilizes industry-grade security measures. It employs AES-256 encryption to protect your data, two-factor authentication to bolster account security, and strong firewalls to block unauthorized access.

Privacy Card Types

With Privacy, you can generate three types of virtual cards:

1. Single-Use Cards—These cards can be used once, and they close automatically shortly after a transaction, ensuring no one can reuse them. They're ideal for one-time purchases on unsecure or unknown websites.
2. Merchant-Locked Cards—These "lock" to the first merchant you use them with, restricting them from being used elsewhere. You can use these cards for purchases at your favorite online stores and recurring payments like subscriptions.
3. Category-Locked Cards—Instead of locking a single vendor, these cards "tie" to a group of merchants you specify and allow transactions with businesses within that category only. They help you budget and track transactions within predefined categories like dining, groceries, or entertainment.
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Privacy comes with the following card controls that let you manage charges more effectively:

Privacy Convenience Features—Streamline Your Spending

Privacy offers additional convenience features that aim to make online shopping and virtual card management seamless. For instance, the Privacy Browser Extension, available for Firefox, Chrome, Edge, Safari, and Safari for iOS, lets you quickly create and autofill virtual card details when making online purchases, eliminating the need to memorize and manually enter card numbers.

Privacy also offers a mobile app for Android and iOS devices, allowing you to manage and monitor your virtual cards on the go. You can receive real-time notifications for card activity, pause or close cards, and set spending limits on your smartphone.

You can also integrate 1Password with Privacy to access and manage your virtual cards and passwords from a single secure online vault.

Joining Privacy—Requirements and Pricing

To become a Privacy user and secure online payments, complete four steps:

1. Go to the signup page
2. Enter the information necessary to verify your identity
3. Connect a bank account or debit card
4. Request and generate your first Privacy Virtual Card
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Privacy offers four plans with varying features for different user needs:

References

^[1]Federal Reserve Bank of Atlanta. https://www.atlantafed.org/-/media/documents/banking/consumer-payments/survey-diary-consumer-payment-choice/2023/sdcpc_2023_report.pdf, sourced October 17, 2024

^[2]FTC. https://consumer.ftc.gov/articles/lost-or-stolen-credit-atm-and-debit-cards, sourced October 17, 2024

^[3]Security.org. https://www.security.org/digital-safety/credit-card-fraud-report/, sourced October 17, 2024

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