What is the difference between a debit and credit card?

While both a debit card and credit card can be used to make purchases at stores or online, how they work is quite different.

A debit card is tied to your bank account. When you use it to make purchases, money is withdrawn directly from your account. If you have no money in your account, the purchase won’t (or shouldn’t) go through.

A credit card is a revolving line of credit, or a loan. When you use it to make purchases, the credit card company funds the purchase upfront. You can continue spending up to your credit limit without paying immediately. At the end of your billing cycle, your credit card company sends you a bill for the amount you owe. You then have the option of paying the minimum amount due (and paying interest on the remainder), paying your balance in full (and not being charged interest) or paying somewhere in between. As long as your account is in good standing, you can continue to spend up to your credit limit.

Each type of card has benefits and drawbacks. A debit card is a safe option. It prevents you from falling into debt, since it won’t function if you don’t have any money in your account. However, should you need to spend a little extra, you won’t be able to.

A credit card, on the other hand, gives you access to additional funds and it gives you the opportunity to build your credit, provided you pay your bill in a timely fashion. The potential risk is that you may end up paying high interest on the balance you don’t pay off, and, if you don’t make your regular payments, you may see your credit score drop.

At Old National, we offer our clients both debit cards and credit cards.