Credit Cards vs. Debit Cards for Online Shopping

By Jason Steele
Published on: 11/26/2019

Debit cards and credit cards may look and swipe the same, but they work completely differently. Each has its advantages and disadvantages, which is important to consider when you’re using one to shop online.

Read on to learn the differences between debit cards and credit cards, and what you should watch out for when using each to shop online.

How debit cards work with online shopping

Using a debit card is kind of like having access to a bank account through a payment card. In fact, most bank accounts offer a debit card as a way of using the funds in your checking account. As with a bank account, you must deposit money in before you can use it to buy anything online or in a store, and you can’t withdraw more than you have in your account. At least not without facing overdraft fee or other fees.

The pros of using debit cards

Because you can’t ever spend more money than you have, the advantage of using a debit card is that you don’t incur debt. Therefore, there’s never any interest charges or late fees to worry about. In fact, you never have to make any payments at all, but you will have to regularly add funds to your checking account if you’re using this card for your daily purchases.

Debit card purchases are also withdrawn from your checking account almost immediately, so it can be easier to track your spending. A transaction on a credit card, however, isn't due to be paid until about a month or so after the purchase was made. While the upside of this is you have time to pay it back, if you're not careful, you could get slammed with higher credit card payments than you originally intended.

Another advantage is that nearly anyone can qualify for a debit card, with no credit check necessary. All you’ll need to do is to provide your name, address and other information to verify your identity and that you are a US citizen or permanent resident. Just be aware that some banks require a minimum amount in your bank account and might perform other checks before opening a checking account for you.

The cons of using debit cards

Like all forms of payment, a debit card does have some disadvantages. For example, most debit cards will have some sort of fees, possibly including monthly fees, loading fees and ATM transaction fees. However, many debit cards offer fee waivers when you maintain a certain balance on your account, or only withdraw cash from an ATM provided by your bank.

Since debit cards aren’t loans, your spending and payment history won’t ever be reported to any of the credit bureaus. So using your debit card won’t have any effect on your credit history or your credit score. If you’re trying to build or rebuild your credit, using a debit card will not help.

Finally, debit cards have a distinct disadvantage when it comes to online shopping security, since debit card fraud protections aren't as strict as those for credit card fraud. If your debit card is lost or stolen, or if your payment information is compromised online in any way, a fraudulent payment will immediately be deducted from your account.

In many cases, victims of fraud do not face liability for the charges and are able to recover their funds when the loss is reported immediately, the protections are not as robust as those offered by credit cards.

How credit cards work with online shopping

A credit card represents a potential loan from the card issuer to the customer. Every time you make a charge to your credit card, either online or in person, you’re taking out a loan. And unless you pay your statement balance in full, you’ll have to pay interest charges on the amount that you borrow.

As a loan, you’ll need to qualify for a credit card based on your credit history and credit score. You’ll also be given a credit limit that you usually won’t be able to exceed. Every month, you receive a credit card statement and have to make at least the minimum payment. Failing to do so on-time will typically result in late fees and additional interest charges, and can hurt your credit.

However, if you pay the card off in full each month, you can avoid paying interest and potentially build your credit at no extra cost to you.

The benefits of using credit cards to shop online

However, having a history of on-time payments and carrying little debt can add positive history to your credit report and sometimes improve your credit score. There are many credit cards that don’t have annual fees, so it’s possible to use a credit card at no cost. Many credit cards also offer rewards in the form of points, miles towards travel rewards or cash back.

Credit cards are protected by strong federal laws, which prohibit card issuers from charging you for fraudulent transactions. These laws give you, the cardholder, the right to dispute the charges for products and services you didn’t receive, and even charges for things you bought that were not as described.

For example, if you go online to purchase a red sweater and you receive a blue one, you can dispute the charge with the card issuer if the merchant fails to correct the mistake. But with a debit card, you wouldn’t have that recourse if the merchant refuses to help you.

This protection could also be helpful if someone steals your credit card information and uses it online, since it limits your liability.

Credit cards can also provide valuable benefits, such as purchase protection, price protection and extended warranty coverage. When you are making an expensive online purchase, these shopping protection benefits can be useful. For instance, you could rely on a credit card’s extended warranty policy rather than pay extra for coverage offered by the retailer.

Should I use a debit card or credit card for online shopping?

For most online transactions, there is little difference between using a debit card and a credit card. When you’re making a purchase from a well-known, major online retailer, and you’re confident that it will accept your returns if you aren’t satisfied, the additional protections offered by credit cards might not matter much.

But when you’re ordering from a smaller company you don’t have experience with, it might be better to use a credit card to make sure you’re protected if the goods or services you buy never arrive, or if you get something different than what you ordered.

However, online shopping is so easy, that it can lead some people to overspending and debt. If this is a concern, you should probably use a debit card. This way, you always have the money you need for purchases, and you don’t go into debt.

If you’re a responsible credit card user, you could earn valuable rewards from your purchases that aren’t available from debit cards. A typical cash back credit card can offer 1.5% on all purchases, and some offer 2%-5% cash back for purchases from specific kinds of merchants.

These rewards can add up to significant savings when you consistently use a credit card for your online shopping.

Bottom line

In most cases, the benefits of online shopping with a credit card clearly outweigh those of a debit card. However, in order to gain these benefits — and not shoot yourself in the foot — you must practice financial responsibility. If you worry about the limits of your discipline, use a debit card and restrict your shopping to websites you trust.

About the author

Jason Steele has been writing about credit cards and personal finance since 2008, poring through the terms and conditions of credit card agreements to understand the minutiae of how these products work. His work has appeared on Yahoo, MSN, HuffingtonPost and other major news outlets. In his free time, Jason’s a commercial pilot. He graduated from the University of Delaware with a degree in History.

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Written on November 26, 2019
Self is a venture-backed startup that helps people build credit and savings.

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