December 5, 2022

Credit cards and debit cards share similarities, and many rely on the same payment networks for processing. But, of course, stark differences exist between debit and credit cards. One is not necessarily better than the other, and both have their upsides in particular circumstances.

What is a Credit Card?

A credit card provides a service its name implies: it extends credit to a borrower. Essentially, someone applies for an account for a SoFi invest card. If approved, the account holder receives a card with a credit limit. When someone wishes to make purchases, the credit card processes the transactions and adds the figures to an account balance. The account holder must then pay the money back, although such accounts offer revolving credit. For example, if the balance is $1,000, someone could pay $100 and gain access to $100 in “freed” credit from the limit.

What is a Debit Card?

Debit cards are a withdrawal service for bank accounts, usually checking ones. When someone wishes to draw money from a checking account, writing a check or making a withdrawal was once the only two options. With a debit card, the account holder could withdraw money from an ATM, with the money coming from what’s available in the checking account. Unless there is an overdraft option, debit cardholders cannot take anything beyond cash available in the account.

Debit and Credit Working the Same Way

Debit cards are not intended exclusively for withdrawing money. For example, someone could use a debit card to make direct purchases, with the purchases relying on either an account’s PIN or through an affiliated credit card payment platform. Ironically, a debit card may work like a credit card but, in reality, is a cash transfer and not a lending source. Similarly, someone could withdraw cash on a credit card with a PIN, subject to cash advance limits.

Credit Cards and Credit Reports

Credit cards may operate similarly to debit cards, but some stark differences. For one, a credit card’s activities contribute to credit scores. Now, credit card usage could positively and negatively impact a credit score. Hopefully, the account holder will use the card with financial prudence. If so, the person might build up a good credit history.

Credit Cards and Perks

Credit cards may provide perks and benefits, such as cashback awards and other benefits. As the team at SoFi Invest points out, the company offers a “credit card that can help you achieve your financial goals,” a unique trait. Debit cards may be lacking in such added perks.

Credit Cards and Loans

When someone knows they only have a finite amount of money to access, the person could budget better. For example, someone with access to loan funds might become too reliant on borrowing, leading to trouble. However, credit funds provide ways to purchase essential items short on money, which can be a plus.

Credit and debits cards have similarities, but they reflect entirely different accounts. Both have value in several circumstances, although credit cards typically come with more perks.

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