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Credit vs. Debit? The Difference is in the Cards.

August 4, 2021 • Education

Credit cards and debit cards — most of us have at least one of each. But if you’re like most people it’s easy to take the differences between the two for granted. After all, they both allow you to make transactions easily and almost instantly whether you’re in a store, at a gas station, or buying new gear on your favorite website.

When you pay with your debit card at a checkout counter, you often have a choice between running your card as debit or credit. What’s the difference?

When you choose debit, you key in your PIN and the funds immediately withdraw from your account. If you don't have enough funds in your account, the transaction will be declined.

When you choose to run your debit card as credit, you sign your name for the transaction instead of entering your PIN. The transaction goes through the issuer’s (i.e. Canopy Credit Union) payment network and a hold is placed on the funds in your account (you might see this as “pending”). The transaction usually officially withdraws from your account within two to three days.

What We Love About Credit Cards

Help Build Your Credit History

Credit card use shows up on your credit report. Your credit report information is then used to calculate your credit scores which can be found on three different credit bureaus, Experian, Equifax and Transunion. Responsible spenders can raise their scores with a history of on-time payments and by keeping credit card balances low relative to the card’s spending limits. A good rule of thumb is to keep your credit card spending 30% or lower of the total available credit card funds. See our blog about What Makes Up a Credit Score? to learn more. 

Warranty and Purchase Protections

Some credit cards may also provide additional warranties or insurance for your purchases—above and beyond those provided by the retailer or brand. If an item bought with a credit card becomes defective after the manufacturer’s warranty has expired, for example, it is worth checking with the credit card company like Visa or Mastercard to see if it will provide coverage.

Fraud Protection

Credit cards offer much greater protection than debit cards in most cases. As long as the customer reports the loss or theft in a timely manner, their maximum liability for purchases made after the card disappeared is $50. The Electronic Fund Transfer Act gives debit card customers the same protection against loss or theft but only if the customer reports it within 48 hours. After 48 hours, the card user's liability rises to $500; after 60 days, there is no limit.

Your Canopy Visa Credit Card includes ID Navigator by NortonLifeLock which includes dark web monitoring, data breach notifications, one-bureau credit-monitoring alerts, stolen wallet assistance and more! Learn more about this benefit at www.canopycu.com/idnavigator

So Yes, We Still Love Credit Cards, But…

Credit Score Impacts

Paying your bill on time and keeping balances on credit cards low can help boost your Credit Scores (FICO scores). But misusing credit cards could hurt your credit history if you get into the habit of paying late, max out one or more of your cards, close down older accounts or apply for new credit too often.

Interest and Fees

Since a credit card is essentially a short-term loan, you'll have to pay back what you spend plus interest. The interest rate and the fees the credit company charges are used to calculate your annual percentage rate (APR). The higher the card's APR, the more it will cost you to carry a balance from month to month.

In terms of fees, you should be aware of whether your card charges an annual fee, foreign transaction fee, balance transfer fee, cash advance fee, late payment fee or a returned payment fee. Luckily for Canopy members, our Visa Credit Cards have ZERO annual fees. 

But Don’t Forget, We Love Our Debit Cards Too.

They Can Help You Avoid Debt

A debit card uses money you already have. That means you don’t have to worry about racking up additional debt. By using debit cards, impulsive spenders can avoid the temptation of credit and stick to their budget.

Fraud Protections

In addition, some debit cards—particularly those issued by payment processors, such as Visa or MasterCard—are starting to offer more of the protections enjoyed by credit card users.

No Annual Fee

While many credit cards charge an annual fee (except our Canopy Credit Card of course), debit cards don't. There's also no fee for withdrawing cash using your debit card at your financial institution’s ATM. Credit cards, on the other hand, can charge a cash advance fee plus a steep interest rate for that convenience. At Canopy Credit Union, we do not charge cash advance fees but you will pay interest on your cash withdrawal next time your monthly payment is due. 

Things to Consider When Using Your Debit Card

Debit Cards Don't Help You Build Credit

Building good credit means demonstrating to lenders that you can responsibly repay money you borrow. When you're spending with a debit card that's linked to your bank account you don't have the opportunity to do that. So using a debit card alone won't help you establish or build a credit history.

The Choice is Yours

Credit and debit cards can be powerful and valuable tools to help you manage your finances and keep track of your payments and purchases. Now that you know more about the advantages and downsides of each, when it’s time to make a transaction, pick the best card that fits your needs!

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