Debit card vs credit card - key differences and when to use each

Written byEmily Tye

Updated:Dec 23, 2025

5 min read

The key difference between a credit card and a debit card is that with a credit card, you borrow money from a lender and repay it later, whereas with a debit card, you spend your own money straight away. But that's not all...

Differences between credit and debit cards

When do you use a credit card vs. a debit card?

Credit cards tend to be better for:

• Large purchases: Section 75 of the Consumer Credit Act 1974 makes the card provider jointly liable with the retailer if a purchase between £100 and £30,000 goes wrong.

• Building your credit score: If you make your monthly payments on time, you can build your credit score. Some people apply for a credit building credit card for exactly this purpose.

• Booking hotels or car rentals: Hotels and car rental companies may place a 'hold' on your card for security deposits. With a credit card, this just temporarily lowers your available credit. If you use a debit card, this can physically 'lock' your cash.

• Earning rewards: Some lenders offer rewards for spending on your credit card, like air miles or cashback.

Use a debit card for:

• Withdrawing cash: Using a credit card to withdraw cash can incur what's called 'cash advance' fees. Always use your debit card to withdraw money.

• Mortgage and rent payments: This is often mandatory, but setting up a direct debit is a good way to never miss a payment, anyway. Tip: Why not report on your rental payments to help boost your credit score?

• Utilities: Some energy providers only accept debit cards for payments. They will also sometimes offer discounts when you set up a direct debit (rather than make one off payments).

• Avoiding debt: If you struggle with overspending, a debit card may help you stick to your budget. Since the money comes directly out of your bank account, you can't spend money you don't have. Tip: Set up a direct debit for your recurring bills at the start of each month to see how much money you have left to spend.

Overview of how credit vs. debit cards work

Credit cards

A credit card allows you to borrow money from a lender to make purchases and repay it later. If you don’t pay the full balance each month, you’ll be charged interest.

Things to know:

• Spending limit: This will be based on your credit limit and you should spend below it.

• Repayment: You must make at least a minimum payment each month.

• Interest: You will be charged this percentage on top of what you owe, if you don’t pay in full.

For more information, read our guide on how credit cards work.

Debit cards

A debit card is linked directly to your bank account. You can only spend money you already have, i.e. from your salary.

Things to know:

• Spending limit: This will be your available bank balance from what you’re paid from your employment etc.

• Repayment: No repayments are needed as you're spending your own money.

• Interest: No interest is accrued, since you’re not borrowing money.

But, if you end up spending more than what’s available on your debit card, a few different things could occur:

1. Payments get declined

2. You enter an arranged overdraft

3. You enter an unarranged overdraft

If the overdraft is unarranged, then you could start accruing interest. Always avoid entering into an unarranged overdraft.

Which is better?

One is not better than the other. Both credit and debit cards are useful - they just serve different purposes.

If used responsibly, a credit card can provide added security and rewards, and can help increase in your credit score. On the other hand, a debit card helps you stay within your financial limits, make crucial payments (like mortgage and utility payments), and withdraw cash from an ATM.

It's recommended to have at least one credit card, along with your debit card(s).

This blog is for informational purposes only and does not constitute financial advice. Please speak to a qualified financial adviser before making financial decisions.