Debit card and credit card, what are the differences?

Debit card and credit card, what are the differences?


Whether you are a newcomer to Canada or a student who wants to build your credit report, it is important to know the differences between the debit card and the credit card, two essentials of the Canadian banking system. Here is an overview with an expert.

"Debit cards and credit cards are both bank cards which are in fact payment solutions, even if each of them has its own particularities", affirms from the outset Pascale Arès, product manager, solutions of cards and payment at the National Bank.

Debit and credit cards come with separate benefits and limits. Here are the main differences between a debit card and a credit card.
1. The debit card, in brief

The debit card is a payment tool that allows you to pay for your transactions and purchases directly using the money in your bank account.
How does the debit card work?

When you want easy access to your money, the debit card is a convenient and secure payment tool. “It's rare that you make a purchase of $ 500 in cash. Most people are not comfortable having such a large sum in their pocket, "says Pascale Arès. However, if you do not have enough money in your account to make your purchase, the transaction will be declined.

Most banking institutions, such as National Bank, offer debit cards with contactless payment and mobile payment. “Importantly, there is often a maximum amount for contactless transactions. "

Obviously, the debit card isn't just for making transactions. "The debit card allows you, among other things, to withdraw and deposit cash, in addition to checking your balance or paying an ATM bill. It is also one of the gateways to online banking services. "
How do I get a debit card?

“The procedure is very simple. All you need to do is open an account with a banking institution and you will be issued a debit card, sometimes referred to as an ATM card. Identity checks are often part of opening an account, but there is no credit check performed on opening a savings or checking account. "

What is the spending limit on a debit card?

The daily limit on purchases or spending may vary from one banking institution to another. In some cases, it is possible to request a temporary increase in this limit for a large purchase, such as a car, for example.
2. The credit card, in brief

The credit card is also a payment tool that allows you to make transactions. But it does give you access to credit that you should repay when you receive your monthly account statement. “It is better not to see the credit card as a financing plan, but rather as a means of payment. Its quick access to funds comes with generally higher interest rates than a personal loan. It is preferable to repay your balance as quickly as possible, ”warns Pascale Arès.

“Often the cards are categorized by financial institutions. You can therefore find more than one card in a category. The main categories include no-charge cards, travel (rewards) cards, cash back cards and reduced interest cards. "

Some cards also come with an annual fee to pay out each year. It is therefore advisable to find out about these fees before choosing a credit card.
How does the credit card work?

The credit card entitles you to a predetermined amount of credit that you can use to make purchases. This amount is your credit limit. While it is advisable to pay your entire balance every month, it is possible to pay off only the minimum amount owed. If applicable, interest charges will be added to the total amount of your purchases each month.
Who decides on the credit limit on a credit card?

This is set based on various factors related to the customer's credit file. “This limit is bound to increase over time if you build a good credit history. After a while, you could apply to increase your credit limit, or even lower it if you feel that you don't need as high a limit as the one you currently have, ”says Pascale Arès. .