Credit cards vs debit cards

While credit and debit cards may seem similar, they vary in both how they work, and where funds are drawn from. Knowing the key differences will help you make the right choice. Here’s how they compare.

Source of funds

Debit cards let you withdraw cash from an ATM and make purchases using your own money. You are restricted by how much money is in your account and your daily spending limit.

With a credit card you can make purchases using a line of credit from your financial provider, such as a bank. You may be able to withdraw money from an ATM as a cash advance and access more funds than your agreed credit if needed, but you’ll be charged additional fees and interest rates.

Credit cards can be useful in case of an emergency should you not have enough money in your transaction account or emergency fund.

Spending limits

Credit cards can be tempting and put you at risk of falling into debt if you’re not conscious about your spending. With a credit card, you borrow money from the bank based on your income, expenses, behaviours, and credit history.

With a debit card, you’re limited to the funds you have in your account and are less likely to accumulate debt. Your debit card will also have a daily cash withdrawal and transfer limit which can further protect you against fraudulent transactions.

Interest charges and fees

Credit cards can have high monthly or annual fees, which will differ depending on the type of credit card you choose. You may also be charged a late payment fee if you miss your repayment, and be charged interest on purchases if you don't repay the balance in full.

Both debit and credit cards can be used for your everyday expenses, but using your debit card often means you won't incur fees and charges, as you're using your own money. Some debit cards also offer benefits like cashback or complimentary insurances, but these cards tend to have a monthly fee.

Note that if you're planning to travel and use your card overseas, some credit and debit cards will incur additional fees, such as an international transaction fee.

Fraud protection

Most debit and credit cards offer fraud protection. This means that suspicious transactions are monitored in real time and the disputed amount put on hold while the fraud is investigated. The difference is that because you’re using borrowed funds on a credit card, your own money is not immediately impacted. With a debit card, your available balance may be impacted until the issue is resolved.

Credit score impact

If you’re saving for a big purchase like a house or a new car, your creditworthiness will play a big role in how much money your financial provider will lend you.

There are ways to improve your credit history and build a higher credit score to make borrowing a better experience and support you to borrow more money. Things like paying your bills, rent and mortgage on time can improve your credit score, regardless of the type of card you use. Missing repayments or making late repayments will have a negative impact on your credit score.

Eligibility and application

If you’re over the age of 14, debit card applications are easy and only take a few minutes to complete online. The age requirement may vary depending on the bank.

If you’re under 14 years of age, you’ll need to go into a branch with a parent or guardian to open up an account and debit card (from 11 years with NAB). Learn more about bank accounts for children.

You’ll need to have an everyday transaction account in your name before you apply for a debit card, so that the card can be linked to the account.

To apply for a credit card, you need to meet certain eligibility criteria like age (you need to be over 18 years of age), proof of income and your creditworthiness, just to name a few. Make sure to check what you need and have everything ready when you apply, as repeatedly applying for credit cards and getting rejected can harm your credit score.

Rewards and benefits

Unlike debit cards, certain credit cards provide benefits like complimentary card insurances, that offer added security measures when you travel. These cards can also be linked to reward programs through airlines or stores, and you earn points based on purchase types and amounts. You can then redeem those points to pay for things like groceries, household items, or even flights.

Debit cards aren’t affiliated with reward programs or special offers, however some debit cards like the NAB Platinum Visa Debit card offer cashback on contactless purchases, complimentary travel insurance, and purchase protection insurance for a monthly fee.

Should I choose a credit or debit card?

Choosing a debit or credit card depends on how you plan to use it, what benefits matter to you, and how confident you are in managing repayments.

• Debit cards are most useful when you want to spend only what you already have and avoid borrowing and interest charges.
• Credit cards can be a better fit if you want benefits like rewards or purchase protection and can pay off your balance on time to avid interest.

For both card types spending within your means and making repayments on time helps you stay in control of your finances. To explore specific credit card features and compare rates, you can use our credit card comparison tool.