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Card usage has skyrocketed over the last few months, but each time you pay, you may ask: "Credit or debit?” Your answer is likely out of habit or based on whichever is currently top of wallet. While the two may seem identical when it comes to making a purchase, there is a very real difference and it’s a good idea to know which is best to use for various scenarios.

Credit or Debit: What’s the Difference?

Most of us today carry at least one of two payment options—credit and debit—which to many consumers may seem like analogous options when it comes to making a purchase. However, there are big differences. Debit cards allow money to be spent by drawing on funds that deposited into the checking account associated with that card. On the other hand, credit cards allow consumers to borrow a limited amount of money money from the card issue to make purchases or withdraw cash.

With these core differences in mind, it’s important to understand that when it comes to credit or debit, your transactions are processed differently depending on which option you select. For example:

• Debit: When you select debit, your money is immediately withdrawn from your account and distributed to the vendor.

• Credit: When you select credit, your payment becomes what is known as an “offline transaction” meaning that the vendor must settle the funds from the credit card processor, which may 2-3 days (hence, there may be a delay in showing the withdrawal of these funds from your account).

Best Times to Use Debit:

By selecting debit, you are required to enter a PIN and since your money is withdrawn immediately, this payment method is the most similar to using cash (an advantage for the vendor you are purchasing from). Now that we have an understanding of how the debit option functions, let’s consider a few scenarios when it may be the best choice for you:

• When the Vendor Needs to Be Paid Immediately: This may be especially important for small vendors who require fast payment.

• When You Have Credit Card Debt: If controlled spending is something you struggle with, it’s recommended that you opt for debit, instead of getting in the habit of selecting credit, since the funds are tied directly to actual funds available.

  In general, if you’re concerned about your credit score, it’s important to get a handle on your credit sooner rather than later. When it comes to your credit, information is key and it’s important to know where your credit stands. To get started, log in to Online Teller, where you can register to see your updated FREE score each month. 

• When Looking for Better Exchange Rates: Using your debit card abroad can be advantageous for getting the best exchange rate, particularly when withdrawing money from an ATM.

Best Times to Use Credit:

From online shopping to rewards and points, using credit for specific purchases can be a good idea—both in terms of security and financial benefits. Check out the below examples for when it’s a good idea to opt for credit:

• When Shopping Online: Credit card issuers watch for fraudulent charges and have protections in place if your information gets compromised. If you see a fraudulent charge on your statement, you can dispute a charge and get it reversed quickly.

• When You’re Interested in Earning Rewards: From hotel and travel points to cash back, using credit can be especially appealing when it comes to the potential benefits. For example, American Heritage offers ScoreCard® Rewards, where you can earn points for valuable merchandise and travel with every dollar you spend using your American Heritage Independence Debit Card or American Heritage Platinum Mastercard.
• When You Want More Fraud Protection: If you’re concerned about potential fraud (this is especially applicable for online purchases—where your information is more susceptible to theft), credit may be the better option, with better protection. According to the FTC, if you’re a victim of fraud, “under the Fair Credit Billing Act, your liability for unauthorized use of your credit card tops out at $50." But for debit card fraud, you could be liable for $500 or more, including from accounts linked to your debit card, depending on the speed at which you report the suspected activity.

If you have additional questions when it comes to the using credit or debit, don’t hesitate to contact our team at American Heritage Credit Union and a member of our team would be happy to help.  Contact us today.