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    Credit Cards Vs Debit Cards: Find How Credit Cards are better than Debit Cards

    Credit and debit cards have made our lives easy by enabling us to go cashless everywhere. Many of us do not understand the exact differences between a credit and a debit card. They look alike with a 16-digit number on it, expiry dates, and come with a pin code. Although the functionality of both credit and debit cards are somewhat similar, their purposes are different. Here, we shall analyse credit and debit card features, differences, and similarities.

    What is a Credit Card?

    A credit card is an electronic device issued by banks and it is used as a mode of payment. As the name implies, this card gives you access to money which is not yours, i.e. on credit, which is as good as borrowing money from a bank. Whenever you make a purchase on your card, the issuing bank will pay the merchant on your behalf. You have to pay back the money to the bank before the due date that is specified on your statement. The banks will also give a credit limit, you are allowed to purchase on your card within that credit limit. Some of the salient features of a credit card are given below:

    • It enables you to purchase now and pay later but within the due date.
    • Banks will charge a certain amount of interest for lending you money.
    • If you don’t make the card payment before the due date, the bank will penalise you by charging additional interest and late payment fees on the amount overdue on the card.
    • If you cross your credit limit, then the bank will penalise you with an over-limit fee.
    • Banks will set a few criteria to issue the credit card. You have to qualify this criteria to get the card.
    • These cards also offer various discounts, reward points, cashback, rebate, or miles on various categories like travel, dining, entertainment, shopping, lifestyle, etc.
    • Cash withdrawals using your card will incur cash advance fees.
    • You can choose your card based on your spending pattern and lifestyle.

    What is a Debit Card?

    A debit card gives you access to the money that is available in your account. You you can make online or offline purchases using this card and the money is immediately deducted from your account. You cannot charge your card beyond your account balance. Banks issue such cards to those who hold a savings or current account with them. You can check your account balance, transfer or withdraw money with your card. The features of a debit card are given below:

    • A debit card is linked to your bank account.
    • This card can be used as an ATM card to withdraw money at no additional charge (if withdrawals are made in Singapore).
    • As you charge your card, you need not make the payment separately, since the money spent is debited directly from the account linked to your debit card.
    • Debit cards do not charge interest rates because it is not a line of credit.
    • They also have offers in various categories.

    Qualifying Criteria for Credit & Debit Cards

    Credit cards are issued only if you satisfy the qualifying criteria specified by the bank. You must be at least 21 years old. Also, most banks in Singapore have conditioned that the minimum annual income to get these cards must be between S$20,000 and S$30,000 for Singaporeans and Permanent Residents. And, for foreigners the annual income requirement starts from S$40,000. Additionally, you should have all the documents required for it.

    However, to get a debit card, you need to be around 16 years old and have a bank account. There is no minimum income requirement.

    Fees and Charges for Credit & Debit Cards

    Credit cards often have an annual fee associated with them. Few of the banks in Singapore have waived off the annual fee for 1 or 2 years. They also have late payment fee, cash advance fee and interests, foreign currency transaction fee, etc.

    Debit cards attract much lower annual fees or may be perpetually waived. Transaction fees are usually incurred for overseas transactions.

    Comparing Criteria Credit Card Debit Card
    Relation with bank Not necessary to have a savings or current account with the bank Is linked to cardholder’s bank account.
    Source of funding Credit limit offered by banks Amount available in cardholder’s bank account
    Monthly bills Yes No
    Line of credit Yes No
    Income criteria Yes No
    Interest charges Yes No
    Credit limit Credit limit is based on the cardholder’s annual income Not a credit product. Use is subject to availability of funds in savings/current account

    Similarities between Credit Card and Debit Card

    • Both credit and debit cards look alike. They have a 16-digit number on it, expiry date, your name, and the type of card with bank’s name.
    • Both the cards are issued by banks or financial institutions in Singapore.
    • Usually, both cards are made of plastic. Perhaps, a few credit cards in Singapore are also made of metal.
    • You can get the transaction details via SMS whenever you use these cards.
    • You can know your account balance or balance credit limit with debit and credit cards, respectively.
    • Both the cards demand authentication for successful transactions using a PIN.

    When to Use a Credit Card?

    You can use this card under the following circumstances:

    • If you want to build your credit score.
    • When you need cash on an emergency basis.
    • When you are out of Singapore and you do not have sufficient cash.
    • If you want to make use of value-added services such as complimentary travel insurance, concierge service, airport lounge access, golf/spa privileges, etc.

    When to Use Debit Cards?

    Below are the situations where you can use this card:

    • When you don’t want to pay high annual fees.
    • When you want to control your spending habits.
    • While withdrawing cash.

    It is beneficial to own both these types of cards since they serve different purposes. A credit card can be very helpful when you want to purchase something that you cannot afford immediately. A debit card will give you access to instant cash if you have it in your bank account without paying additional fees.

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