Credit cards vs debit cards – which is safer?

Key takeaways

• Debit card purchases draw on your existing funds and don't involve borrowing or paying interest unless you go into your overdraft

• When you use a credit card, you agree to repay the borrowed funds along with any interest accrued, following the provider’s terms

• Credit cards can give additional protection to debit cards because of a consumer credit law called Section 75

• Debit cards are issued with bank accounts, but compare the pros and cons of a credit card before deciding whether you should have both 
  

What is a credit card?

A credit card is more than just a piece of plastic; it's a financial instrument that extends a line of credit to its holder. When using your credit card, you're essentially borrowing money from the credit card provider, which could be a bank or another financial institution.

Entering into a credit card agreement means you agree to repay the borrowed funds, along with any interest accrued, according to the provider's terms.

Advantages of using a credit card

Credit cards come with a number of attractive benefits:

• Payment protection: Credit cards offer a level of financial protection for purchases, making the issuer partly responsible for any issues with transactions between £100 and £30,000

• Breathing space between payments: The grace period provided by credit cards can help cash flow management, allowing you to defer payment using your own funds

• Builds your credit score: A credit card can be a powerful tool for building a good credit score, provided you use it responsibly. This can lead to more favourable borrowing terms in the future, including lower interest rates on loans and mortgages

• Rewards: Many credit cards come with rewards programs that offer loyalty points, cashback, or air miles for spending

Disadvantages of using a credit card

However, credit cards are not without their drawbacks:

• Debt: Interest rates can be high, making it easy to accumulate debt if you're not diligent with repayments. This can spiral into more severe financial issues

• Can damage your credit score: Mismanagement of a credit card can lead to a bad credit score, making future borrowing more challenging and expensive

• Fees and charges: There are various fees and charges associated with credit card use, including penalties for missed payments or exceeding credit limits, and possibly annual fees depending on the card

What is a debit card?

A debit card is linked to your current account, and every time you use it to make a purchase the money is withdrawn from your bank account. Unlike credit cards, debit cards don't usually involve borrowing or paying interest, unless you are using an overdraft.

Advantages of using a debit card

Debit cards are straightforward and come with several advantages:

• No or few fees: Most debit cards don't charge fees for regular use, making them cost-effective for daily transactions

• Chargeback: Debit card users can utilise chargeback for refunds on goods and services, without the transaction amount limitations of Section 75

• Avoid debt: Since you're limited to spending money you already have, debit cards can help you live within your means and avoid debt

• Safety: Debit cards offer a safer alternative to cash, with the ability to cancel the card if it's lost or stolen

Disadvantages of using a debit card

Debit cards also have their limitations:

• Less protection: Chargeback on debit cards isn't legally binding, offering less robust protection than credit cards

• Overdrafts: Spending beyond your account balance can lead to expensive overdraft fees

• Limited use abroad: Using your debit card outside your home country can incur additional charges, though some digital banks offer more favourable terms

• Doesn’t improve credit score: Debit card use doesn't impact your credit score, so it won't help in building or repairing credit

What’s better to use, a credit or debit card?

The decision between using a credit card or a debit card isn't about which is inherently better; it's about which is more suitable for your financial habits and goals. Each has its place in a well-rounded financial strategy, and wise use is key to maximising their benefits.

Here are a few examples of where using a credit card over a debit card could be beneficial:

In contrast, the main reason why you would only use a debit card – and not a credit card – is to avoid the temptation to borrow beyond your means and therefore increase the chance of slipping into debt.

Other Useful Guides

For those looking to delve deeper into the world of credit cards, consider exploring additional resources such as:

• Getting your first credit card guide

• How to apply for a credit card

• Contactless payments guide

Compare Credit Cards with MoneySuperMarket

Finding the right credit card doesn't have to be daunting. With MoneySuperMarket, comparing credit card deals is straightforward. Just provide some personal and financial details, and use the eligibility checker to see which cards you're likely to be approved for, simplifying your search for the perfect credit card.

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.