Debit vs Credit Card: How do they work and why does it matter? [2024 guide]
If you’ve ever wondered about the difference between a debit and a credit card, this guide is for you. Debit vs credit cards may look the same - but they work in very different ways.
Join us as we explore both and look at the difference between debit and credit for Malaysian customers.
Debit Card vs. Credit Card: an Overview
They might look strikingly similar, but don’t be deceived. Credit vs debit cards are different - and may suit different customer needs and different transaction types.
A debit card can be cheaper - but you’ll need the money up front. A credit card lets you split the costs of a purchase over time - but may have strict eligibility requirements and fees to pay. This guide walks through all you need to know.
Key takeaways:
You can use both debit and credit cards to withdraw cash at an ATM, and make purchases on and offline
When you spend with a debit card you’ll need to have available balance in your linked account, as the transaction cost is deducted right away
If you have a credit card you’ll be able to spend to your credit limit, and then pay off your bill at the end of the month
Credit cards let you build a credit history, and can often help you earn cash back, rewards or air miles
Debit cards can be cheaper than credit cards and don’t normally require a credit check or proof of income
What Is a Debit Card?
You can get a debit card linked to a transaction account from a bank or non-bank alternative provider. If you spend or make a withdrawal using your debit card, the transaction value is debited immediately from your linked account. That means you must have enough money in your account to cover your costs - or the transaction is likely to be declined.
Debit cards are usually pretty cheap to get and use, and issued on global card networks like Visa and Mastercard, to be used for spending around the world.
When is a Debit Card the Best Choice?
Neither debit nor credit cards are better per se - but they might suit different customers or different transactions. Here are a few times you might favour a debit card over a credit card:
Day to day spending: Debit cards can be used to tap and pay in stores, make cash withdrawals and often with mobile wallets like Apple Pay. Usually there’s no fee to spend in a currency you hold in your account, making this practical and convenient
Travelling Abroad: If you choose a debit card designed for international use like the Wise debit card you may avoid overseas transaction fees to cut the costs of overseas spending
Budgeting: Debit cards do not allow you to spend more than the balance of your account, and they don’t come with the risk of interest or penalty fees if you fail to repay your bill at the end of the month
What Is a Credit Card?
To get a credit card you’ll usually have to apply to a bank and undergo a credit check, or prove your income. The bank will issue a card if you’re approved, with a predetermined credit limit. You can spend to this limit every month and then receive a bill which you must repay in full to avoid or limit fees. If you don’t pay back the full amount one month you can let it roll over to the next billing period, but interest will apply.
Credit cards can come with more fees compared to debit cards, but you can build credit history and smooth the costs of a purchase over a few months if you ever need to.
When is a Credit Card the Best Choice?
Credit cards offer some good benefits, depending on the card you pick and how you choose to use it. Here are some times a credit card might be a better option than a debit card:
When Building Credit History: Use your credit card responsibly, and it will contribute to an improved credit score - which can be important if you want to increase your credit line or access a loan in future
Spreading the Cost of Large Purchases: Manage the cost of a high value purchase over time by paying off the costs over several months - extra fees apply, but this can still be handy for big ticket items
Purchase Protection: Some credit cards - particularly premium products - offer purchase protection to safeguard your purchases against damage, theft, or issues with returns
Rewards and Cash Back: Many credit cards offer rewards programs, cash back on purchases, or points that can be redeemed for travel, merchandise, or other benefits
Key Differences Between Debit and Credit Cards
Let’s put credit vs debit cards head to head now, looking at some of the most important features and how they compare:
| Feature | Debit cards | Credit cards |
|---|---|---|
| Builds credit history | No - spending does not usually change your credit score | Yes - card use will impact credit score |
| Money comes out of your bank account | Yes - money is deducted automatically | No - you must pay your bill every month manually |
| You can purchase something and pay later | No - you need the money in advance of a purchase | Yes - spend now, pay later available |
| Liability for stolen cards/charges | Varied - your bank may help you if your card is fraudulently used, but you retain some liability | Varied - some cards offer enhanced protections versus debit cards |
| Fees | Usually low | Can be high - including annual fee, interest and penalties |
| Spending limits | Spend to the balance of your linked account | Spend to your credit limit |
| Cost to order and maintain | Often no or low cost to order, annual or monthly fee may apply | No cost to order, annual fee likely to apply |
| Best to use in an emergency | Depends on your account balance | Can be helpful if you still have remaining credit |
| Interest charges | No | Yes |
| Reward options | Not common | Often available |
As you can see, neither debit vs credit cards are better in all situations, so having both is a common strategy. This allows you to pick the right card for any given situation and means you have a back up if one card is lost or out of action for some reason.
Pros and cons of Debit Cards
So is it worth getting a debit card? Here are a few pros and cons to consider before you sign up for a new card from a bank or non bank provider:
| Pros of debit card | Cons of debit card |
|---|---|
✅Usually cheap, with no credit check required ✅International debit cards can be excellent for foreign travel ✅Often no fee to make ATM withdrawals in Malaysia | ❌Does not build credit history ❌You need money in your account before you can spend ❌Doesn’t usually come with rewards, cash back or other perks |
Debit cards aren’t all the same - so picking the right card for your needs can help you make the most of the options. For example, the Wise debit card is designed specifically for international travel, and allows you to enjoy no overseas transaction fees and currency conversion with mid-market exchange rates and conversion costs starting as low as 0.33%. This makes it an excellent choice for saving on purchases abroad.
Pros and cons of Credit Cards
Credit cards are available from all major banks - and cover a very wide range of products. You’ll usually need to prove your income to get a card, but with so many different choices there is probably one that suits you out there. If you’re on the fence, here are a few things to consider:
| Pros of credit card | Cons of credit card |
|---|---|
✅No need to fund big purchases up front - spend now, pay later ✅Can offer enhanced purchase protections ✅Often come with rewards, cash back or miles | ❌Fees can be high, including ongoing charges, interest and penalties ❌Credit checks or minimum income requirements apply ❌ATM withdrawals and international use can be particularly expensive |
Credit cards have some great perks - but they’re not always the right choice. Credit card issuers tend to use a foreign transaction fee which pushes up the costs of overseas spending for example - and cash advance charges can make ATM use very expensive too. Having a credit card for occasional use makes sense for many people, though - the key is picking the best one for your personal needs.
How Does a Debit Card Work?
You can get a debit card from a bank or non-bank provider, which will be linked to an account which must be funded before you can transact. Using a card is very simple - card use is widespread, means you don't have to carry lots of cash, and is secure for day to day payments. Use your card online, in stores or to get cash from an ATM - the costs of your transaction are deducted from your linked account more or less immediately, If there’s not enough balance to cover your costs the transaction is usually declined.
Debit cards are secure to use, and come with Chip and PIN technology. Your personal identification number (PIN) should be kept secret, and allows you to verify in person spending. If you’re shopping online you’ll usually be asked for the card's validation code (CVC) which proves the card is in your physical possession when you pay. Both of these measures increase security - although it’s always essential to keep an eye on your account and report any unexpected transactions to your bank.
Most debit cards are issued on a global processing network like Visa or Mastercard. Both of these networks are available around the world so you just need to look out for the logo when you pay or make a cash withdrawal at home or abroad.
How Does a Credit Card Work?
You can usually get a credit card from a bank or direct from a card network like American Express. You don't necessarily need a bank account with the bank you get a credit card from, as the card is a standalone product. However, you will need to complete an application and usually prove your income to show you can afford to use the card for spending.
Credit cards are issued with a credit line which you can use over the course of a month and then pay back. Often if you pay back your purchases right away you’ll avoid extra costs, but interest applies if you don’t pay everything back at once. If you use your card at an ATM the chances are that you’ll pay a cash advance fee, and interest will start to accumulate immediately, though.
Credit cards are normally issued on a processing network like Visa or Mastercard, and can be used globally. Some cards are issued in partnerships between a bank or network and a company or organisation. Airlines, for example, often offer credit cards which can be used for spending and also to collect air miles for future flights.
Conclusion: What’s the difference between a credit card and a debit card - and which is better?
As we’ve seen, credit vs debit cards are actually quite different products. Neither is better - but one or the other may be more helpful for specific purchases or at specific times. A debit card can be good for day to day transactions for example, but a credit card might be good for a high value item if it offers enhanced purchase protection. You could also choose to pay back the costs over a few months - but fees apply for this.
Use this guide to decide how to make best use of credit and debit cards. For many people, having more than one card makes sense as you can choose which card to use for which occasion. Having a bank debit card for day to day payments in Malaysia, a specialist international debit card like the Wise card for overseas, and a credit card for emergencies and big ticket items may make sense, for example. Do some research and decide which card types and products are right for your unique needs.
FAQ
Neither credit or debit cards are better - but they may suit different transaction types. If you want to avoid extra costs, debit may be the best option - but credit cards are good for buying high value items and earning rewards, for example. Having a local and international debit card and a handy low cost credit card can be a good approach for many people.
Debit cards are usually low cost, with no chance of running into unexpected fees, interest or penalties. Just top up your account and get ready to spend. Choose an international debit card like the Wise card for spending abroad and you could cut down currency costs, too.
Credit cards can be quite expensive - but may come with benefits like enhanced purchase protections, rewards and ways to build your credit score. Look out for a card with no annual fee, and pay back your bill on time every time, to keep the costs as low as possible.