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Credit Card vs. Debit Card: Which is Better?

As a college student, it’s important to have a convenient way to access your money. Especially with the post-pandemic rise in cashless transactions, it’s useful to have a contactless option on hand. When you’re trying to find the right card for you, you’ll first want to decide– credit or debit? Let’s talk about the credit card vs. debit card debate and the pros and cons of each.

Credit cards vs. debit cards

While credit cards and debit cards may look the same at first, they work very differently. When you make a purchase using a credit card, you borrow money from the card issuer. At the end of the statement period, you’ll pay back any money you owe. However, when you make a transaction with a debit card, you’re spending money directly from your account.

Debit cards are typically easier to obtain than credit cards since they don’t require a credit score. When you get approved for a checking account, your bank will usually automatically give you a linked debit card. Credit cards, on the other hand, can sometimes be more difficult to qualify for. However, using a credit card often comes with extra perks and security. Since the two options have their own pros and cons, it’s important to understand the tradeoffs of each.

See also: Credit Karma Review

Benefits of using a credit card

Many consumers are wary of credit cards because of their potential to accrue debt. However, as long as you make responsible spending and financial decisions, you can make your credit card work for you. Here are some of the main reasons why a credit card should be your spending tool of choice.


Many credit cards entice you to spend more by offering a cashback bonus on all purchases. Even cards with a $0 annual cost will often offer some rewards. For example, the Discover it Student Cash Back card promises unlimited 1% cash back, in addition to 5% cash back on qualifying purchases. Other cards will offer perks like sign-up bonuses, discounts and travel benefits.

Increased security

Using a credit card protects you from the risks of fraud and card theft, regardless of your provider. Thanks to the Fair Credit Billing Act, credit card users are only liable for a maximum of $50 in unauthorized charges. However, if you report your card as lost or stolen before it’s used, you won’t be responsible for anything. Additionally, many credit cards promise $0 fraud liability protection and allow you to dispute charges that you don’t recognize.

Some credit card companies also offer non-fraud protection plans. For example, with purchase protection, you may be able to get insurance from your provider for damaged or stolen purchases. Similarly, return protection ensures that you’ll receive a refund from your credit card company if you try to return a working item that the merchant won’t accept.

Credit cards can also give you peace of mind while making travel-related transactions. Depending on your provider, travel insurance may cover a trip delay or cancellation, lost luggage, a trip accident or emergency evacuation. Some credit cards will also offer rental car insurance, which allows you to opt out of the rental agency’s insurance plan when renting a vehicle.

However, you may have to pay an annual fee for most cards with company-specific protection plans. Therefore, you’ll have to weigh the benefits and decide whether or not the cost is worth it.

Building credit

Unlike a debit card, using a credit card builds your credit history, which contributes to your credit score. Having a good credit score upon graduating college can come in handy for so many reasons. In addition to getting you better rates for student loan refinancing, it can also help you get approved for a nicer apartment. It can also be beneficial down the line when you’re looking to buy a car or get a mortgage on a house.

However, in order to build credit using your credit card, you need to use it responsibly. That can mean so many things, from paying your bills on time to staying under 30% of your credit limit. To learn more about how to improve your credit score, check out our article, How Long Does It Take to Build Credit?

Higher limits

Your first credit card will typically start with a relatively low limit. However, as you continue using your card paying off your statements on time, your line of credit will increase. Although this may raise your potential for risk, it can also come in handy when you’re in a bind.

Whether you’re stuck in the city and need to order an Uber or you need groceries before your next paycheck, you never know when you’re going to need money ahead of time. Knowing you always have funds at your disposal can give you a sense of security throughout your day-to-day.

Drawbacks of using a credit card

While credit cards can come with many perks and benefits, they’re not always the right choice for everyone. Being a student can be pretty hectic, and it can be easy to forget a payment every once in a while. However, when it comes to credit cards, a single slip-up can lead to heavy consequences. Therefore, it’s important to be aware of what you’re getting into beforehand.

Risk of accumulating debt

Using a credit card can give consumers access to more funds than they have. While this may be useful in a pinch, it can also enable you to overspend. While student loan debt is fairly common for college graduates, credit card debt can set you back significantly.

According to WalletHub’s Credit Card Landscape Report, the average credit card interest rate is 17.87% for new offers and 14.58% for existing accounts. This rate can be even higher if you neglect to pay off at least the minimum balance, at 25.66%. Therefore, any balance remaining at the end of your statement can become a much higher bill in the end. While credit card rewards can be enticing, the benefit of cashback and protection plans pale in comparison to the cost of unpaid debt.

Increased maintenance

Compared to debit cards, credit cards require a fair amount of responsibility on the part of the cardholder. When you have a credit card, it’s important to pay off your statement every month if possible. Fortunately, most credit card providers can send you text or email reminders before your statement is due. However, if you know you’re forgetful or you tend to procrastinate, a credit card may not be the right choice for you.

Potential to lower your credit score

Your credit score is one of the most important financial indicators on your record. A good credit score can be instrumental in securing housing, insurance and even a job. However, a bad credit score can cost you a lot of money over time through high loan and insurance rates. While you may be able to raise your credit score with responsible financial management, you may also lower it with bad habits. Therefore, you’ll want to think about if you’re ready to take on that risk.

Benefits of using a debit card

While having a debit card may not contribute to your credit score, it still has its fair share of benefits. With lower risks and more intuitive terms of use, it may be a more favorable option for many individuals.

Greater transparency

Whenever you make a purchase using your debit card, it’s reflected almost immediately in your checking account. The quick turnaround can make it easier to see your financial standing at a glance, especially compared to a credit card that you’ll pay off at the end of the month. Using a banking app linked to your account can also allow you to check it more regularly. This can come in handy when budgeting or allocating your spending throughout the month.

See also: How To Create a Budget as a College Student

Accessibility of cash

Whether you’re going to a cash-only restaurant or you just like having money on hand, you can’t always survive on your card alone. Luckily, debit cards make it easy to get cash through ATMs or store check-outs. Credit cards, on the other hand, can come with some pretty hefty fees for cash advances. According to WalletHub’s study, the average rate when withdrawing cash using a credit card falls around 20.32%.

Lower risk

We’ve already talked about the risks associated with racking up credit card debt, from high interest rates to low credit scores. Fortunately, with debit cards, you don’t have to worry about that. While debit cards may still allow you to deplete your funds by getting too swipe-happy, you can accrue debt in the same way. Additionally, misusing your debit card won’t have any impact on your score, which makes it a safe option for beginners.

Drawbacks of using a debit card

Although debit cards can protect individuals by imposing more restrictions, they also come with fewer perks. Therefore, it’s important for consumers to know the differences before they start using their debit card like a credit card.

Less security

Unlike credit cards, debit cards aren’t covered by the same fraud protection under federal law. Whereas credit cards fall under the Fair Credit Billing Act, debit cards are subject to the Electronic Funds Transfer Act.

Under the EFTA, consumers must report their card as missing before any unauthorized transactions to be free from any liability. If they report it within 2 days of discovering the loss, they’ll be responsible for up to $50. After that, they’ll have to pay up to $500. However, if they wait 60 days or longer before reporting, they’ll be responsible for any transactions made using the card. Therefore, it’s important to file a report as soon as you realize your card is missing.

Consumers can also dispute charges with their bank directly. However, this can involve a much longer and more complicated process than with credit cards. It can also take the bank up to 30-45 days to make a final decision.

Fewer rewards

While some “rewards” checking accounts offer cash back on purchases, it’s not standard for most debit cards. While the lack of perks may discourage overspending, that cash back can be a nice bonus. Therefore, by using a debit card as your primary payment method, you may miss out on some valuable savings.

Which is right for you?

When it comes to debit cards vs. credit cards, the best option may vary by individual. While a credit card may come with more perks and buyer’s security, a debit card is often a better low-maintenance option.

Fortunately, you don’t have to make a choice between the two. Many consumers benefit from having one of each. That way, you’ll be able to make large purchases using your credit card in order to get rewards and added security. On the other hand, your debit card can serve as a backup payment option and allow you to get cash when you need it.

Applying for a credit or debit card can be a big financial decision. It’s important to weigh the costs and benefits of each one before making a commitment.

Keep reading: Top credit cards for students