Debit and credit cards both let you pay for something instantly. However, the way your money moves and what it costs you is very different.

One card uses the money you already have, while the other gives you access to money you can borrow. Understanding this fundamental difference between a credit card and a debit card, along with how each of them works, could help you to stay in control of your finances, avoid fees and build a secure financial future.

What is a credit card?

A credit card lets you borrow money from a card provider, up to a pre-agreed limit. If you use your credit card to pay for something, like goods or services, you aren't spending your own money. Instead, you're using the lender's money, which you agree to pay back later.

The card provider sends you a statement each month showing your spending, and you have the option to pay the full balance, the minimum payment or something in between. If you choose not to repay the full balance by the due date, you’ll be charged interest on the outstanding amount.

There are different types of credit cards to choose from, and it’s a good idea to check if you're eligibleopens in a new tab before you go ahead to see if you'll be accepted.

What is a debit card?

A debit card uses the money you have in your current account. This is a digital substitute for physical cash. When you use your debit card to make a payment, the funds are instantly taken directly from your bank balance.

A debit card doesn't typically involve borrowing money. If you don’t have enough money in your account, the payment will usually be declined. If your bank does allow it to go through, you’ll be using an overdraft (a feature that lets you borrow more than you have), which usually comes with fees.

Credit cards: advantages

• Flexible: You can make a larger purchase now and spread the cost over several months. So if you need to pay for something like costly repairs on your home or replacing your boiler, a credit card could be an option.
• Secure: Credit cards also come with protection under Section 75opens in a new tab. This is a UK law that holds your card provider jointly responsible with the retailer if something goes wrong with a purchase between £100 and £30,000. If the retailer goes bust before you get your goods or service, or if any goods arrive faulty, you might be able to claim back your money from the card company.
• Build credit score: Credit cards can help you build your credit history or rebuild your credit scoreopens in a new tab. Paying your balance on time each month and staying within your limit shows lenders you can manage credit responsibly, which can put you in a good position for improving your credit score over time.

Credit cards: considerations

• Interest rates: It's important to keep on top of repayments each month as these charges can quickly add up. Regardless of what the interest rate is, it's an added expense to consider when taking out a credit card.
• Fees: You might also be charged fees in certain situations. Late payment fees, annual fees, and additional charges when you use your card abroad are all key considerations.
• Potential for debt: Credit cards can easily lead to debt if you treat the credit limit as your own money rather than something you've borrowed.
• Damage to your credit score: Missing a payment, or making one late, could damage your credit score, which might make it harder to be approved for credit in the future.

What are credit cards useful for?

Credit cards work best for purchases where you need extra protection or short-term flexibility. Booking travel, buying white goods, or paying for essential repairs are common examples. Section 75 protection, under the Consumer Credit Act, means you could get your money back if the seller fails to deliver.

They're also handy for spreading big costs, using 0% purchase offers, 0% balance transfer offers or earning rewards on planned spending. If you do repay the balance in full each month (if it’s affordable to you), you gain all the benefits without paying interest.

For credit-building, you could use your card for a small, regular monthly expense, such as a subscription service, and then pay it off. This would demonstrate to lenders that you’re a reliable borrower and make payments on time.

When are credit cards not a suitable choice?

Credit cards aren't always a suitable choice. If you have a history of struggling to manage debt or if your income is currently unstable, for instance, a credit card might not be right for you.

If you've only ever paid the minimum and allowed the balance to grow rapidly with previous forms of credit, it might not be suitable either. The revolving cycle of debt can quickly become expensive and stressful.

If your goal is just to budget using your existing money, a credit card might not be the best choice.

Debit cards: advantages

• Simple budgeting tool: Debit cards are a straightforward choice because you can only spend what you already have. This makes it an excellent budgeting tool for daily expenses.
• Avoid debt and charges: Unless you spend an unarranged overdraft, you won't be charged interest for using your debit card.
• Keep track of spending: Debit cards are widely accepted and offer an easy way to track your spending, as every transaction appears on your bank statement instantly, giving you a real-time view of your current account balance.

Debit cards: considerations

• No protection: If you buy a faulty item, or a company you bought from goes bust, you do not have the same Section 75 legal cover that a credit card offers. Instead, you have to rely on a voluntary scheme called Chargeback, which is a process your bank carries out on your behalf - but is not legally mandated and can be unsuccessful.
• Doesn't build credit: A debit card does nothing to build your credit history. While not hurting your score, using a debit card exclusively means you miss the opportunity to demonstrate responsible borrowing, which is essential for things like mortgages or larger loans.
• Uses your own funds: As you're using your own money, you'll need to make sure there's enough in your account to cover spending (or use an overdraft).

When might it be better to use a debit card?

Use a debit card for small, everyday cash-like purchases, such as buying your lunch or withdrawing cash from an ATM. It could be the best choice for transactions where the risk of the seller failing is low.

Always use your debit card over a credit card when you need to be certain you are sticking to your budget and not spending money you don’t have.

When to avoid debit cards

You should consider using something other than a debit card for any high-value purchase where you need maximum consumer protection. For instance, if you're buying a big-ticket item like a new boiler or an expensive piece of furniture, a debit card isn't necessarily the best choice.

If you're ordering something from a new, small or international business that you aren't completely sure about, a credit card might be a better choice as it has the Section 75 cover.

Debit vs credit card: who's eligible?

Credit card eligibility

Eligibility for a credit card depends on your credit score and financial history. Lenders look at your past behaviour with repaying credit, your existing debt levels, your income and how often you have applied for credit recently.

You need to demonstrate stability and how likely you are to pay back what you owe. This is where your credit score comes in. This is usually a three or four digit figure that credit referencing agencies like Experianopens in a new tab and Equifaxopens in a new tab create based on your credit history.

If your score is ‘excellent’, you’ll qualify for most products and deals. If your score is ‘fair’ or ‘poor’, you may be limited to credit-builder cards, which have lower limits and higher interest rates but provide a path to improving your history. Some credit card companies (like us) offer a soft search toolopens in a new tab that allows you to check your eligibility without affecting your credit score.

Debit card eligibility

Eligibility for a standard debit card is quite straightforward. If you have a bank account in the UK, it's likely that you'll get one.

Banks perform identity and address checks but won’t usually do a hard credit search when you apply for a basic current account and debit card. The card is directly linked to the account, so as long as you can open an account, you get a card. Even those with very poor credit or people new to the country can access a basic bank account with a debit card.

Credit vs debit card: which is safer?

It depends on what you're buying. A credit card is generally considered safer than a debit card for purchases over £100 because of your protection under Section 75.

If a fraudulent transaction happens on your credit card, the provider will often move quickly to resolve the issue and protect its funds.

If fraud occurs on your debit card, the thief spends your money, potentially emptying your current account. This can cause significant disruption while the bank investigates, runs checks and processes a refund.

See if you're eligible for a Capital One card

You can QuickCheckopens in a new tab to see if you'll be accepted in a few clicks.