Credit & Debit
By: Ryan Chen
Two identical cards in your wallet, a silent struggle from the confusion. Which card should you use: a credit card or debit card. Two cards that sound quite similar to each other, but are severely different from each other. Each card holds its own purpose. The choice between the cards can shape your future. Both credit and debit cards allow you to make purchases online or in person, but their functions are very distinct from each other.
Credit Vs. Debit: What's the difference?
Debit cards allow you to use the money that you already have in the bank, while credit cards allow you to use borrowed money to a certain extent from the bank. However, you must pay back the money you borrowed when using the credit card. The question you might be asking is which card you should use when purchasing a cheap item or an expensive item. While both cards can be used to purchase any sort of item, it's recommended to use your debit card to buy expensive items. This is because your debit card is directly linked to your own checking account, which allows you to purchase anything with the money you deposited into your bank. This means that the money you put into the bank is the only money you are allowed to withdraw and use. Credit cards are used when the item you are trying to buy is not too expensive. This is due to the limit that is put on your credit card. Each credit card has a certain limit that you cannot exceed when purchasing your products. The limit is set there so you don’t purchase a product or products that you know you can't afford. The money that's coming out of your credit card is borrowed from the bank, and you have to pay it back to the bank.
What's a Credit Score/Why Does It Matter?
Another key insight about credit cards that you may not realize is a thing called a credit score. Credit score is a secret digital number connected to all credit cards. Your credit score is a three-digit code that the bank uses to see your recent purchases and how frequently you borrow money. This is a key part in which they see if you are trustworthy with the money they lend you. The higher your credit score is, the higher the chances of you being approved for many key components in your future life. These components include: loans, renting, and jobs. Here are some steps on how to maintain a good credit score so you don't make poor financial decisions and end up writing a sob story.
Steps to Maintaining a Good Credit Score
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Paying the bills on time
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Paying the credit card bill on time and not saying “ehhh I'll do it later” can easily improve your credit score.
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Banks will think you are a trustworthy user of the credit card and will allow you to use more of it because they know you're responsible
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Not getting too close to your credit limit
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Reaching your credit limit is a big red flag.
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Maxing out your card makes the lender think you are a highly irresponsible user of your credit card.
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Keep your total purchases below 50% of your credit card limit.
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Having a long credit history
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The older your credit card account is, your score will increase due to the bank entrusting you with a card for a long period of time.
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In summary, understanding the differences between the two cards is a very crucial information one needs to know. The way you use your credit cards can shape your future, too. Might sound super scary (cause it is). Purchasing the items that you desire the most, spending your money irresponsibly, and the temptation. However, we shall not fall into temptation and fight against it by using the credit cards wisely and maintaining a good balance.
Citations
Understand, get, and improve your credit score. USAGov. (n.d.-a). https://www.usa.gov/credit-score (7/20)
Cussen, M. P. (n.d.). Credit cards vs. debit cards: What’s the difference? Investopedia. https://www.investopedia.com/articles/personal-finance/050214/credit-vs-debit-cards-which-better.asp (7/20)