Debit Card vs Credit Card: What Affects Your Credit Score


Fincrif India

Aug 8

05:58 AM

Are debit and credit cards unclear to you? Despite having the same outward appearance, they serve quite different purposes and have very varied characteristics, such as EMI options, reward points, and effects on credit scores.

Do you understand debit and credit cards? Although they appear to be identical, they have quite diverse functions and a wide range of attributes, including EMI alternatives, reward points, and consequences on credit score

Debit Card  

You can make purchases using your debit card, which is linked directly to your savings account. As long as your bank account has funds, you can use the card. Debit cards come in several varieties, including:

Standard Debit Card: Your bank account is accessed immediately to withdraw the funds.

Prepaid Debit Card: Purchases made with a prepaid debit card are only permitted up to the pre-loaded limit. It enables withdrawals without requiring a bank account.

Electronic Benefits Transfer (EBT): Federal and state organisations provide the Electronic Benefits Transfer (EBT) card to allow certain users to use some benefits to make purchases. Food stamps and cash assistance are frequently offered advantages.

Credit Card 

Financial entities, often a bank, are responsible for issuing credit cards. The company issuing the credit card sets the cardholder's credit limit, which they can use to borrow money for a brief period of time. When you apply for a credit card, you consent to repay the amount on the specified date in accordance with the conditions set out by the lending organisation. Major credit card categories include the following four:

Standard Card: Simple credit card given by the bank is called a "standard card."

Secured Credit Card: Initially, a security deposit must be put on a secured credit card. The transaction limit of the card is the same as the deposit you pay here.

Reward Card: It comes with cash back, travel points, and other perks.

Charge Card: This card doesn't have a predetermined spending cap, but the full balance is due each month.

Difference between Debit Card and Credit Card 

The sole similarity in appearance between debit and credit cards is that they both look nearly identical. Both cards feature CVV codes, expiration dates, and 16-digit card numbers. However, the two cards' purposes and applications are distinct.

1) Impact on Credit Score:

There are three ways a credit card might lower your credit score.

  • Your credit history is built

  • Demonstrates your intention to pay back

  • Depicts your credit behaviour

A secret benefit of using a credit card is the ability to establish credit. A key component of your credit report and score is your credit history. The straightforward argument is that it is impossible to have a score without a history. Simply put, there are no standards by which to compare you. Debit cards do not contribute to your credit score because they are dependent on the amount that is really in your account. So long as it's used responsibly, using a credit card can help you establish a strong credit history. A credit card that is properly handled has a solid payment history.This indicates that you make all of the required monthly payments on time.

Not least among these factors is how you handle credit. Do you frequently go above and beyond your credit limit? Do you have a high credit utilisation ratio? This ratio represents how much of your actual credit limit has actually been used. For instance, your credit utilisation percentage is 80% if your credit limit is Rs. 1 lakh and you frequently utilise Rs. 80 k. This demonstrates a credit-hungry attitude, which is viewed unfavourably.These things lower your credit score, give lenders a bad opinion of you, and make it difficult for you to obtain a loan approved.

2) EMI Choice:

Due to the fact that the entire payment is directly deducted from your savings account, there is no concept of an EMI with debit cards. While certain banks and e-commerce sites do have a debit EMI option, you must keep a fixed/recurring deposit in order to use this service. When you make a transaction, money is initially taken out of your bank account and then added back in two working days. This implies that you must keep the required balance from the moment of the original purchase. After 30 days from the date of the reversed charge, the debit card EMI begins.

You can turn your purchases into monthly installments with credit cards. However, until your EMI is completely paid off, interest must be paid on the balance every month. Service tax and other extra costs could be required of you as well. Using separate credit cards to pay for various items and raising your overall credit limit can be an idea you have. But hold off before clicking "Apply." Your credit score will suffer if you have several credit cards and use them frequently. Banks examine each credit card you use when you apply for a loan and look at its credit history.

3) Purchase Protection:

Cards with PINs, such as debit and credit cards, are safeguarded. The liability protection feature found on the majority of credit cards protects users from unauthorized transactions and fraud. Additionally, many banks offer a chargeback mechanism, which reimburses the cardholder for unauthorised credit card purchases. Debit cards don't have access to these services. If you desire this level of security, you can enroll in the Card Protection Plan (CPP) and protect your debit card from theft or unauthorised use. Credit cards give cash back and perks like fuel points, air miles, and free gifts, in contrast to debit cards.

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