Check your credit score today

See your credit score in minutes. It's free, forever.

See your score

Difference between credit card and debit card

Ever wondered what the difference is? Keep reading to find out.

25 August 2022Lloyd Smith 7 min read
 Difference Between Credit Card and Debit Card

Check your credit score today

See your credit score in minutes. It's free, forever.

See your score

There are a few fundamental differences between a credit and debit card, and understanding them can make it easier for you to choose between the two.

Moreover, while you can own both credit cards and debit cards, knowing when to use which one is important. When making a purchase, debit cards take money directly out of your bank account. Credit cards allow you access to a line of credit extended to you by a bank or credit card provider.

Here’s an in-depth look at other key features that distinguish between debit vs credit card.

A credit card lets you borrow money against a line of credit and is normally provided by a financial institution, bank, or credit card provider. The line of credit is the card’s credit limit and that is the maximum amount you can borrow with your card.

There are different ‌credit cards that have different fees, rewards, and interest rates. Some of the types of credit cards include:

  • Low interest credit cards that offer zero or low interest rates
  • No annual fee credit cards, which provide you with a line of credit for purchases and no annual fees
  • Premium credit cards that usually have a high annual fee and interest rates, but offer a wide range of rewards and other benefits.
  • Rewards credit cards also offer reward programs. Customers can get travel points, cash back or other rewards using rewards credit.
  • Balance transfer cards that allow you to transfer debts from other credit cards to a single card low introductory interest rates

How they work

The most fundamental difference between credit vs debit card is that when you make a payment using a credit card, money isn't directly debited from your account until debit cards. Instead, the amount is deducted from your credit card limit.

You can spend up to the credit limit on your credit card. Your limit is determined by the bank based on several factors, including your credit history and type of credit card you are using. You can also apply to increase the credit limit, if needed.

Purchases made using the card must be repaid before the monthly credit card bill due date. In case you can’t pay in full, you also have the option of paying the minimum amount to avoid a late fee. Though in such cases, there will be an interest rate charged over the unpaid balance which will get rolled over to the next month’s bill.

There are also credit cards that offer 0% interest for an introductory period, during which you are not charged any interest in transactions. But it applies only if you clear your pending balance in whole before the specified deadline each month.

Impact on credit score

Credit cards can affect credit scores. Making timely credit card payments regularly can actually boost your credit score. But continuous late payments can actually decrease your credit score. Moreover, regularly using up your credit card limit can also affect your credit rating. When you use up your limit, it increases the credit utilisation ratio for credit cards, which can in turn impact the credit score.

Therefore, it is recommended to avoid going overboard on credit score utilisation by using only over 30% of your credit limit.

Fees and charges

Here are the different fees and charges for credit cards in Australia that you should be aware of:

  • an annual fee
  • late payment fee
  • balance transfer fee
  • foreign transaction cost
  • returned-payment fee
  • cash advance fee


Credit cards can help you earn incentives, depending on the reward program. You can get reward points, gift cards, cashback, frequent flyer miles, and more.

But as compared to non-rewards cards, rewards credit cards often feature a higher interest rate and annual fee.

Application process

It can get approved for credit cards with low interest and benefits, especially if you don’t have a good credit score.

Though, there are also credit cards for bad credit that you can apply for if you have been struggling to get a credit card approval. But it's important to note that these bad credit cards often come with higher interest rates and no benefits.

To apply for credit cards, you must complete an application and give information about your finances, profession, and earnings in order to be approved for a credit card.

Personal details are required because using a credit card essentially grants you access to the institution's funds. Therefore, the institution wants to ensure that you are an accountable borrower who can repay the amount used.

A debit card is a type of payment card that deducts cash straight from your bank account. So you essentially make purchases using your own funds through a connected bank account.

Because you can only spend the amount in your checking account when using a debit card, there is no interest rate or repayments involved in using debit cards. The Reserve Bank of Australia reports that debit cards are more popular in Australia than credit cards.

Debit cards are connected to your regular bank account, allowing you to spend your personal funds removing the need to make repayments. This simply implies that in order to use a debit card to make a purchase, you must have the required quantity of money in your bank account.

Overdraft benefit is available in some transaction accounts. If your balance falls below zero, you can still get more funds. When your transaction account is overdrawn, you will normally be charged interest and fees.

To use your debit card at stores or ATMs, you will be given a personal identification number (PIN). Some stores accept debit cards without requiring a PIN at all. Impact on credit score

Debit card applications by themselves are not recorded on your credit report and have no influence on the overall credit score.

Fees and charges

There are normally little or no fees connected with debit cards unless cardholders purchase more than they have in their bank and end up gaining an overdraft fee. However, there can be annual maintenance fees and premium card fees, depending on the debit card you use. These fees can be higher if the debit card offers a reward program. In short, both debit and credit accounts that come with a reward program have higher fees.

There are no charges when using your debit card in Australia at an ATM serviced by your bank. Sometimes, however, you may be required to pay additional costs, such as foreign transaction fees.


There are many debit cards that allow you to earn rewards or frequent flyer points, although the rewards may not be as beneficial as compared to a credit card.

Application process

When requesting a debit card, there often aren't any qualifying criteria. Many banks will supply you with a debit card when you open a bank account.

When comparing the differences between debit and credit cards, it's important to look at their perks and downsides.

Pros of credit cards

  • Fraud protection: For your protection from fraudulent activities, most credit cards provide 24-hour fraud monitoring systems and a zero liability policy. In case there is a credit card fraud charge made on your card, you can report it to your credit card provider and get it reversed.

  • Purchase and warranty protection: Most credit cards come with insurance features like extended warranty and purchase protection.

  • Improve your credit score: You can build credit with credit cards by making payments in a timely manner.

  • Rewards points: When using your credit card to make purchases, you can receive reward points that can be used for cash back, retail gift coupons, frequent flyer miles, and more

Cons of credit cards

  • Overspending can lead to a debt spiral: If you use a credit card carelessly, you risk getting into more debt than you can handle. A credit card is essentially a loan that must be reimbursed monthly in order to prevent interest and debt accumulation. Spending more than you can afford to pay back can lead to accumulating interest

  • More strict application criteria: Credit cards are harder to get as compared to debit cards. Moreover, applying for multiple credit cards together can also decrease your chances of getting one since every credit card application is marked as a hard credit check in your credit report.

  • Impact on credit score: Missing credit card payments can harm your credit score and create difficulties in obtaining credit cards or loans in the future.

  • Interest charges and fees: If you cannot make your payments during the interest-free period, you will be charged with interest. Annual fees and cash advance fees are some of the other extra fees that can be charged.

Pros of debit cards

  • Simple to apply: Application for debit cards is generally easy. You can directly ask for a debit card against your bank account.

  • No interest rate: There is no interest rate for using debit cards and you don’t pay an annual fee as well.

  • Less risk of debt: A debit card uses funds that the cardholder presently has in their account, removing the risk of incurring debt.

Cons of debit cards

  • Extra fees: Debit cards don't have annual fees, however, having a checking account may incur extra costs, which include overdraft costs, recurring monthly fees, and international ATM fees.

  • No fraud protection: Debit cards are safe since they require a PIN. But they are also directly linked to your bank account, which means if someone were to get access to your card details, they could essentially steal all the money in your account. You can complain to your bank about this and they will take it seriously. Though, since actual money is stolen, it would turn into a police case and it can take quite a long time to get your money back.

  • No way to improve your credit score: You can not build credit or improve your credit score when you make purchases with a debit card.

Both credit cards and debit cards have their own advantages and disadvantages. The degree to which you favour using debit cards vs credit cards depends on your particular preferences.

Finding a card that is reasonably priced and has features you are likely to use will help you get the most usage out of your preferred card.

If you want to avoid fees or overspending, then you need to use debit cards. But credit cards can be more helpful if you want to borrow from a line of credit all the while improving your credit score.

ClearScore allows you to check credit score for free and review all the credit card offers you are eligible for, based on your credit history. Take a look.

Lloyd Smith Image

Written by Lloyd Smith

General Manager AU

Lloyd spreads the word about how awesome ClearScore is.