Picture yourself in the checkout line after a big shopping spree. Your must-haves scanned, you ready your plastic before the clerk’s voice rings out: “Credit or debit?” Most of us say “debit,” enter our PIN and don’t think twice about it. But should you run your debit card as credit instead? Find out how these two options differ and which you should choose.
Most point-of-sale terminals offer two buttons before processing your payment. Let’s look at what happens when you press each after swiping your card:
- Credit. You’re offered this button when using a credit card or a debit card that can be used as one. You sign for your purchase, and your transaction is processed through the network on your card — typically Visa or Mastercard. Your merchant pays a fee equal to a percentage of your transaction, and your purchase is added to your card’s monthly statement.
- Debit. You enter your four-digit PIN number, and your transaction is processed through an electronic funds transfer system like STAR or NYCE. Your merchant avoids paying a fee, and the amount of your purchase is deducted from the checking account associated with your card.
If you only care to pay for your goods, not concerned as to whether you pay automatically from your account or later as part of your card statement, then either choice will do the job.
When debit might be better
If you’re trying to stick to a budget, running your transaction as a debit might help. Your purchase is immediately withdrawn from your bank account, eliminating the risk of missing a statement and accruing interest on your purchase. You also typically have the option to withdraw extra pocket money, though many debit cards come with fees for the convenience.
Does it matter how my payment is processed?
It might, though it ultimately depends on your circumstances.
Checking account transactions are processed through various processing networks, while credit transactions are processed directly by Visa or Mastercard. Debit transactions are deducted from your account immediately, while credit purchases are considered “offline” transactions and take longer to process.
When credit might be better
For big purchases, like a TV or mattress, running your transaction as a credit could unlock rewards, purchase protections and other perks offered by your card provider. Disputing fraudulent charges is also easier when they’re credit transactions.
When you pay using your credit card, you get the security benefits of Visa or Mastercard that makes it easy to get your money back if there’s a problem with the transaction. If, say, your transaction is processed multiple times or you don’t receive the goods you pay for, it’s on the merchant’s bank to pay for the charge
Chargeback protection on debit cards is paid for by your bank, so it costs the merchant less. This is why you will see some stores imposing surcharges or minimum limits on credit card transactions but not on transactions carried out with debit cards.
Learn more about chargebacks
- Pay for purchases on credit without worry that your account doesn’t contain sufficient funds.
- Take advantage of you provider’s chargeback protection.
- Bank and providers typically monitor your card for suspicious activity or fraud.
- A credit card surcharge may apply to your transaction.
- The merchant may impose a minimum transaction amount.
- You must pay your card statement in time to avoid interest on your purchase.
- Transactions aren’t processed immediately, which can be frustrating if you need quick turnaround.
- Transactions are processed immediately.
- If your account doesn’t include sufficient funds, the transaction is canceled — which can keep you from going into debt.
- Because you pay with your own money, you aren’t at risk of paying interest on your debt.
- If your account doesn’t contain sufficient funds, you aren’t able to complete the purchase.
- You won’t enjoy the same level of fraud protection as offered on credit purchases.
Some debit cards offer the flexibility to also be used as a credit card. You simply choose whether to run your transaction as a debit or credit. Note that some dual-purpose cards impose higher interest rates on purchases run as credit.
The use of cards with contactless technology is rising in the United States. Tap-and-go payments are a quick, easy way to pay for transactions of up to $100. But which account is the money drawn from when you tap your card?
If your contactless card is a debit card, money to pay for your purchase comes from the bank account linked to your card.
If your contactless card is a credit card, the funds are drawn from your credit card account, regardless of whether you’ve also linked a checking or savings account to the card.
If you have multiple accounts linked to your debit card and you’re unsure where funds are drawn from for a purchase, contact your bank.
The difference between the credit or debit button ultimately involves what happens behind the scenes. Each method pays for your purchase, but one results in a fast withdrawal from your bank account and the other as a line item on your monthly credit card statement.
Ultimately, it comes down to how much control and protection you want on your purchases.