Despite their visual similarities, credit cards and debit cards operate in fundamentally different ways. It’s important to understand the benefits and differences of each, as well as your own spending habits, so you can determine the right option for your own personal circumstances.
A debit card is issued by your bank or financial institution, linked directly to your everyday transaction account. A debit card lets you withdraw cash or make purchases using your own money, and the funds are immediately deducted from your linked account.
Selected debit cards can be used for purchases online or at retail stores, paying bills, and withdrawing cash from an ATM.
A credit card is a payment card that allows you to borrow funds up to a predetermined limit to make purchases, so you're essentially borrowing money.
Unlike debit cards, where funds are immediately deducted, credit cards provide a line of credit using the issuer's (the financial institution’s) money. You’ll then need to repay the borrowed money, as well as any interest or fees, usually on a monthly basis.
As well as using a different source of funds, there are a few more big differences between credit and debit cards: interest and fees, credit history and credit score impacts, security, and reward features.
No matter what type of card you’re thinking about, interest and fees are an important consideration.
Most debit cards won’t attract interest charges as you’re spending money from your own linked account (unless your linked account becomes overdrawn).
With credit card purchases, interest is charged on the outstanding balance if you don’t pay it in full by the due date.
When it comes to credit card cash advances, interest charges usually apply from day one of the transaction until the full balance of the debt on the card has been repaid.
Some credit cards can comewith an interest-free period (such as up to 55 days), where you won’t be charged interest. However, the interest-free period only applies if you pay your closing balance in full by the due date each month.
While debit cards have no minimum repayments because the money is yours to begin with, credit cards are essentially the bank's money, so they do require minimum monthly repayments. This is the minimum amount you need to repay to avoid late payment fees.
When it comes to other fees, debit cards generally don’t have annual fees as they don’t involve borrowing. Some credit cards have annual fees, especially if they have rewards programs or premium benefits.
In Australia, some ATM operators also charge fees on debit card transactions. If your account’s with Westpac, the good news is you can access your cash fee-free from any Westpac, St.George, BankSA, Bank of Melbourne and some other ATMs.
Cash advances – cash withdrawals from your credit card account – can be made at any ATM, merchant facility or any Westpac branch, but these attract fees. For Westpac-issued credit cards, for example, a fee of 3% of the cash advance amount will be charged to your account.
Be aware that foreign transaction fees may apply on both credit and debit cards, for example when using an ATM when overseas or buying items online.
Account overdrawn fees and debit interest may apply on your debit card’s linked account if your spending exceeds the available funds in your transaction account.
Credit cards can go over the limit, but the balance is due immediately to avoid interest charges. (Westpac doesn’t charge overlimit fees on credit cards issued after 4 June 2012).
Whether you choose a credit card, debit card or both, it’s well worth doing your research on the individual products you’re considering, as interest charges and fees can vary greatly.
Your credit score (or credit report) is a number that is calculated based on your financial history and is used to determine the level of risk you pose to a lender, such as a bank.
Using a debit card, you’re spending your own money and not borrowing money, so there’s no direct impact on your credit score and only using a debit card won’t establish your credit history.
Using credit cards, on the other hand, directly affects your credit history. Your payment history, types of credit used, credit utilisation and new credit applications will all contribute to your credit score.
Using credit cards responsibly, by making timely payments, keeping your balance low relative to the credit limit, and even reducing the limit on your card can all help maintain a healthy credit score. In fact, responsible use of credit cards can be an effective way to build your credit history. Late payments as well as multiple credit and loan applications in a short period of time can all negatively impact your credit score.
It’s important to regularly check your credit score to help maintain a healthy credit profile.
Keeping your money secure is paramount, whether you’re using a debit card, credit card, or combination of both.
No matter which card you choose, look for a few key security features, such as fraud protection and zero liability (so you get refunded for any fraudulent transactions).
For debit cards, you might have limited access to your funds while the matter is investigated and resolved, which could be inconvenient if you need the money for essential expenses. It’s important to remain vigilant and dispute any unauthorised transactions quickly.
Westpac has a suite of security features for credit cards and debit cards, including 24/7 fraud monitoring as well as a Fraud Money Back Guarantee. Westpac’s debit card security includes a dynamic CVC for digital cards, which changes every 24 hours and is different from the CVC printed on the back of your physical card. There's also the ability for you to temporarily lock your card if you've misplaced it - and unlock it when you find it.
When it comes to comparing credit cards and debit cards, you might want to consider any perks or rewards that may come from making purchases using your card. Some credit cards offer rewards when you spend money, such as frequent flyer points, complimentary overseas travel insurance, or airport lounge passes.
But it’s not just credit cards offering reward points and perks. The Westpac Debit Mastercard®, for example, comes with a range of benefits. This includes Mastercard’s Priceless Cities program, which gives access to dining, shopping and sporting experiences in over 40 cities around the world.
Eligible Westpac credit and debit cards offer account holders access to ShopBack, an online platform featuring over 4,000 online, in-store and gift card brands with deals and cash back.
You can apply for a Westpac credit card online or at any branch. During the application process, you’ll need specific ID and verification documents, although this may vary if you’re an existing account holder.
This documentation can include proof of where you live, evidence of a regular income (minimum income requirements depend on card type), repayment ability, and a credit check. It’s important to note that applying for a credit card will impact your credit score.
The most popular Westpac bank account is a Westpac Choice, this comes with a Westpac Debit Mastercard. The account can be opened online in as little as three minutes.
You’ll automatically receive your linked plastic Debit Mastercard, as well as a digital version of your card that you can start using immediately when you also download the mobile app.
Credit cards and debit cards both have their benefits, so it’s important to think realistically about what kind of spender you are.
If you're confident about sticking to a budget, making regular repayments, and paying bills on time, a credit card can be a practical way to help manage your spending. It may also be handy for emergencies if you need to borrow money, because life might throw up a large, unexpected expense you temporarily can't cover.
Whichever method you choose, be sure to look at the interest and fees, security and perks to help you make an informed decision.
For Westpac issued products, conditions, fees and charges apply. These may change or we may introduce new ones in the future. Full details are available on request. This information does not take your personal objectives, circumstances or needs into account. Consider its appropriateness to these factors before acting on it. Read the disclosure documents for your selected product or service, including the Terms and Conditions, before deciding. Target Market Determinations for the products are available.
Fees and charges may apply for international money transfers.
The information in this article is general in nature (including any tax information provided) and does not take your objectives, financial situation or needs into account and does not constitute tax advice. Consider its appropriateness to these factors; and we recommend you seek independent professional legal and/or financial advice about your specific circumstances before making any decisions.