Credit Card vs. Debit Card: Which one to use and when?


It can sometimes be confusing knowing which card to use for purchases. Read our guide to find out more about the differences between a debit card and credit card and when to use them.



When it comes to everyday purchases and transactions, it can be difficult to decide to use a debit card or credit card. Depending on your specific accounts, one can sometimes leave you in a better state or you can find making payments on a certain card means paying fees or more interest.


We’ve taken a look at the key differences between debit and credit cards and put together this handy guide to give you more information on what to be aware of.


How does a debit card work?

You’ll normally get a debit card to use with your current account. You can use this card to access the funds in your account and to make payments with these funds. This could be purchases over a counter in a shop or paying for services and goods over the phone or online. You can also use a debit card to withdraw money directly from your current account at an ATM.


When making payments in shops, nearly all cards today use contactless technology where you can pay for goods up to £100 by tapping your card over a terminal. You can also use ‘chip & PIN’ to pay, by putting your card into a terminal and entering your PIN.


Key points for debit cards:

  • You will need to have funds available to pay using a debit card (see the section below about overdrafts).
  • You won’t be charged any interest on these payments (see the section below about overdrafts).
  • Any payments made using a debit card, takes this money from your account immediately (or soon after).
  • If you need to use your debit card abroad for purchases or to withdraw cash, you might find you are charged for these transactions.

If you have an overdraft on a current account and you make a payment using a card, you might find you are charged interest on the amount you have used. Some current account providers will allow you to have an interest-free overdraft which means you can use these funds without being charged interest. If you exceed the overdraft amount you have agreed with your provider, you could also be charged interest.



When to use a debit card

Using a debit card can allow you to keep track of your spending. As the funds are taken from your account almost immediately, you can see straightaway how much you have in your account. This can mean you are more informed about whether to make a purchase. You can also usually avoid paying any fees or interest by using a debit card although this can differ if you use an overdraft.


Debit cards can be a good option for making small purchases, especially if you will be charged interest on the same purchase with a credit card. You can also withdraw cash without paying a fee or being charged interest.


How does a credit card work?

Using a credit card means that you borrow money to use for purchases. This money is then paid back at a later date to the credit card provider. You may then be charged interest if you don’t clear your credit card balance.


Credit cards can be used for a few different reasons. They can be a good way to improve your credit score when used responsibly and they can offer you more protection when making a purchase. Some credit cards also offer rewards like points or cashback although they could also come with a fee.


Key points to credit cards:

  • The amount spent on a credit card is borrowed from the credit card provider.
  • You will be charged interest on your credit card balance if you don’t clear it each month.
  • If you withdraw cash using a credit card you may be charged interest on the amount you withdraw and there may also be a fee to pay.
  • Some credit cards come with an annual or monthly fee to pay.


When to use a credit card

There are a few situations where you might decide that using a credit card is better than a debit card. For example, paying for an expensive item or a holiday. This is because you may be able to claim your money back if the item is faulty or if the company goes out of business.


If you are able to use your credit card responsibly and can pay off the balance each month, it can help to improve your credit score over time. You should be aware that credit cards for building credit can sometimes come with higher interest rates and lower credit limits.


Debit card or credit card - the differences

To make things easier we've outlined the main differences below:

Debit cards

  • You can purchase goods and services using your current account funds (up to an agreed overdraft limit).
  • You can withdraw cash from an ATM without charge (subject to the ATM used and any overdraft on your current account).
  • Some current accounts come with an annual or monthly fee. For this you may receive additional services like insurance for example.
  • There is some protection for your purchases under the Chargeback scheme.
  • Debit card payments and purchases are not covered by section 75 of the Consumer Credit Act.

Credit cards

  • You borrow funds to make purchases on a credit card, up to an agreed credit limit.
  • You are charged interest on these purchases unless you clear your balance in full each month.
  • There can be monthly or annual fees to pay with certain credit cards.
  • You are usually charged a fee and interest for ATM withdrawals.
  • Purchases between £100 and £30,000 are protected under Section 75 of the Consumer Credit Act and the Chargeback scheme. The £100 minimum amount applies to each item or set of items you buy, rather than the total bill.
  • Section 75 offers protection for purchases in the event the company has failed to supply the goods or services or has supplied goods not up to standard or misrepresented what it is supplying.
  • You are subject to fees and charges if you miss a payment or make a payment late.