A credit card is a payment card that allows users to pay for goods and services with borrowed money. A credit card is not tied to a bank account; rather it is tied to an account with the card issuer. For credit cards, you do not have to have a bank account with the issuer, and you do not have to deposit any money with them. You can buy whatever you want with the card, and pay back within 30 days, or incur interest on the balance.
A debit card on the other hand, is a payment card issued by a bank that you have an account with. It is a card directly linked to your account, and every time you pay or buy something with your card, the money is deducted from your personal bank account.
While they are both used to make payments and purchase goods, Credit and Debit cards work in different ways.
- A credit card is not linked to your personal bank account. Whatever money you spend on the card is supplied by your card issuer.
- To get a credit card, you need a positive credit history that shows that you pay your loans as at when due.
- There is usually a spending limit placed on credit cards by the issuer. That means you cannot spend more than a certain amount.
- Interest is charged on credit cards when you have failed to repay your loan as at the due date.
- Your credit card usage and activities affect your credit report, such that you can have a report full of negatives if you have been defaulting on your payments.
- A debit card is connected to your personal bank account, and money is taken from your bank account to pay for anything you buy through your card.
- A debit card is issued automatically most times, as long as you have a bank account. You do not need a credit history to apply for a debit card.
- There is no spending limit imposed on a debit card. You can spend as much as your bank account allows.
- No interest is charged on a debit card, except you use more than the money you have and go into debt with the bank. This is called overdrawing your account.
- Using a debit card does not affect your credit report.
Debit cards are more common than credit cards in Nigeria, because a lot of people do not have access to credit facilities, and because there is inadequate information about what a credit card is, and how it works.