When do you use a credit card, and when do you use a debit card? Many people don’t think very carefully about debit versus credit. They use whichever card is closest at hand.

Some people mistakenly assume debit is more secure than credit, even though it’s often the other way around. Other people don’t realize that making purchases on debit won’t help them build the kind of credit score needed to take out a car loan or apply for a mortgage.

Is credit always the better choice, or are there times when it’s better to use a debit card? Let’s check out the ins and out of this debate.

Bankrate Insights
  • 87% of Americans use a debit card. (Statista)
  • 83% of Americans have at least one credit card. (The Federal Reserve)
  • The average American has 3.84 credit cards. (Experian)
  • There were 376 million open credit card accounts in the U.S. as of Q2 2022. (American Bankers Association)
  • In 2018, Americans made more transactions with debit cards than with credit cards (86 billion vs. 45 billion), but the total dollar value of credit card transactions was higher ($3.98 billion in credit card transactions vs. $3.1 billion in debit card transactions). (The Federal Reserve)

Debit card vs credit card: What’s the difference?

Debit cards allow you to spend directly from your checking account, while a credit card charges a credit line you’ll pay off later, potentially with interest. When you swipe or tap your card, you’ll enter a pin for your debit card while a credit card may require a signature.

Beyond the technical differences, debit cards and credit cards differ in one significant way: rewards. Credit cards come in many varieties, but many credit card holders use them because they offer cash back. In fact, Bankrate’s January 2022 survey found that cash back was Americans’ favorite credit card feature by far.

The Federal Reserve’s 2019 Payments Study found that debit cards were used almost twice as often as credit cards in 2018, but the value of credit card payments exceeded the value of debit card payments by nearly 30 percent.

How do credit cards work?

Credit cards allow you to make purchases now and pay them off later. Most credit cards offer revolving lines of credit, so you can either pay off your balance in full every month or carry a balance from month to month and pay it off over time. If you do not pay off your balance in full before your credit card grace period ends, your unpaid balance will accumulate interest.

Credit cards come with a unique 16-digit number that lets you quickly make purchases in person or online — as long as you haven’t exceeded your credit card limit.

Pros and cons of credit cards

Pros of Credit Cards Cons of Credit Cards
Help users build their credit score It’s easy to get caught up in a cycle of debt
Users can earn travel or cash back rewards on purchases Many credit cards come with high interest rates
There are built-in protections for theft or fraud Some cards have annual fees
Pay off your payments over time rather than upfront Worthwhile cards have strict approval requirements

When should I use a credit card?

Credit cards are flexible tools that allow you to borrow money, build credit, earn rewards and pay securely. But without the right habits and intentions, your credit score will take a hit.

Here are a few instances where it may make the most sense to use a credit card:

When you’re online shopping

Want to know how to shop online safely? Start by choosing reputable retailers like Amazon, Walmart and Target. And when you shop small, be sure that the website is secure. Look for “HTTPS” at the beginning of the web address rather than “HTTP.”

Then, try to use credit cards for as many purchases as possible. Since credit cards offer fraud liability protections that debit cards do not, meaning online purchases with credit come with fewer risks. So if you’re debating debit or credit for online shopping, pick credit for a safer shopping experience.

Want to reduce your online shopping fraud risk even further? Add your credit cards to a virtual wallet. While storing your credit information on a digital wallet may sound like a fast track to getting hacked, virtual wallets actually make transactions safer. Today’s digital wallets use multiple forms of security to ensure that your credit card number remains hidden during every online shopping transaction. By creating a unique token every time you shop, for example, digital wallets make it very difficult for thieves to steal your credit card information.

When you’re at the gas pump

Gas station fuel pumps are among the riskiest places to pay since many gas stations haven’t yet implemented EMV chip readers, and credit card skimmers can quickly swipe your information when you pay at the pump. It can be dangerous to use your debit card, which is tied directly to your bank account, over a credit card, especially when the card reader at the pump prompts you to swipe your card instead of inserting the EMV chip.

If you want to work on your credit score

If you want to build your credit score, you’ll need to use credit cards over debit cards. While you might not be approved for the best cards right away, there are credit cards for people with no credit history. You’ll want to use those credit cards responsibly by making on-time payments and keeping your balances as low as possible. A 750 or 800 credit score doesn’t happen overnight, but practicing good habits and showing discipline to potential lenders can lead to success with loan qualification and lower interest rates down the road.

If you want to earn rewards

If you want to earn cash back, points or miles on everyday purchases — not to mention additional perks like complimentary airport lounge access — you’ll want a top rewards credit card. Although very few debit cards offer cash back on purchases, you aren’t going to get as many rewards with debit as you will with credit. While the cash back debit cards only offer 1 percent cash back, the best cash back credit cards offer at least 1.5 percent on general purchases and as much as 6 percent cash back on popular spending categories.

How do debit cards work?

Debit cards, like credit cards, come with a unique number that allows you to make purchases in person or online, quickly. The big difference between debit and credit is that debit cards withdraw money from a linked checking account. Instead of making a purchase now and paying it off later, a debit card immediately draws from your account to pay for the entire amount. As long as there’s enough money in your checking account, your debit card purchase should be approved. And since you’re using the money you already have, you don’t have to worry about going into debt from the purchase.

Pros and cons of debit cards

Pros of debit cards Cons of debit cards
You likely won’t pay any fees to use your card You won’t earn rewards
It’s harder to overspend Debit cards won’t build your credit score
You won’t pay high interest rates Fewer fraud protections
Can withdraw cash at an ATM for no charge Some debit cards still come with fees

When should I use a debit card?

Sometimes people hear “cash versus credit” and assume it means “credit cards versus paper money.” The truth is that debit cards are largely the same as cash. These days, “cash” refers to any money already in your possession, such as the money in a checking or savings account.

When you’re comparing credit cards and debit cards, here’s where debit could come out ahead:

When you’re trying to stay out of debt

If you want to avoid credit card debt altogether, you have two options: either pay off your credit card bill in full every month or make every payment in cash.

Making every payment with a debit card to avoid credit card debt can be a smart financial move. If you are trying to stick to a budget, for example, a debit card can keep you from spending more than you can afford. Likewise, many people working to pay off old credit card debt decide to only use debit cards until they’ve paid their debt in full.

When you need to take out cash

If you need to withdraw money at an ATM, debit cards are by far the most viable option. When you take out cash against your credit card’s limit, you must pay back the money borrowed. But the catch is this: The interest rate for a cash advance is much higher than the interest rate on credit card purchases, and there’s no grace period. Meaning, that cash advance will start accruing interest immediately.

If you can pull out cash from your debit card, do so. You can avoid unnecessary fees and interest charges by going this route. If you can visit an ATM that is associated with your bank, you most likely won’t pay any fees at all.

When you want to save money on interest

The average credit card interest rate is currently hovering around 19.5 percent, making it quite costly to carry a balance on a credit card. If you’re currently working on paying off your high-interest credit card debt, put your card aside and use your debit card for the time being. But continue to pay down your balance or else your credit score will take a hit.

Debit or credit: Which is safer?

Both debit cards and credit cards come with safeguards to prevent fraud. When you use a debit card at a grocery store or gas station, for example, you are often required to provide a unique PIN. When you shop with credit online, you’re often required to enter your credit card’s three-digit security code. Banks and credit card companies are also constantly on the lookout for any transactions that could be potentially fraudulent. In most cases, they will send mobile alerts as soon as they notice suspicious charges or unusual activity on your account.

That said, credit cards offer a few fraud protection benefits that debit cards don’t. Nearly all of today’s top credit cards offer zero fraud liability on unauthorized charges, which means you won’t owe a penny on any charge determined to be fraudulent.

Debit cards also limit your fraud liability but require you to report your lost or stolen card within two business days to limit your liability to $50. If you report after two business days but before 60, your liability goes up to $500. If just your debit card number is stolen and not the card itself, you are not liable for unauthorized charges, as long as you report them within 60 days of receiving your statement.

In general, credit cards offer better fraud protection. If someone skims your credit card information, for example, you have time to dispute the charge before you’re liable for the payment and the pending charge may never even post to your account. If you use a debit card, though, the funds can be removed from your bank account directly and quickly, making the process of disputing and getting your money back much more time-consuming.

The bottom line

If you use your credit card responsibly and avoid making purchases you can’t pay off over time, the benefits of using credit cards — from increased rewards to enhanced fraud protection — often outweigh the potential costs. On the other hand, there are circumstances in which paying with a debit card can help you save money, whether you’re trying to stick to a budget or avoid credit card debt and interest charges.

If you want the best of both worlds — the security of credit and the cost-effectiveness of debit — you might want to consider using your credit card like a debit card. If you’re going to charge a purchase to your credit card, make sure you can pay it off with the money that’s already in your checking account.

As long as you pay your credit card bill in full every month, you’ll be using your credit card like cash, avoiding interest charges and staying out of debt — while building credit and earning rewards.