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Credit card vs debit card

While a credit card is linked with a line of credit, a debit card is linked to your bank account. Here's how to decide which one to use.

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If you open up your wallet now, the chances are good you'll see a few debit cards and maybe a credit card or two. In fact, almost all adult Australians have more than one debit card and many have a credit card, with Finder research for 2022 showing there are around 36.36 million debit cards in Australia and 13.17 million credit cards in circulation.

So, what's the difference between a debit card and a credit card? Let's take a closer look at both types of cards so you can decide which one is better in different situations.

Credit cards vs debit cards at a glance

credit card with plane iconCredit cards

  • Line of credit
  • Most cards charge an annual fee, as well as interest if you carry a balance
  • Many credit cards offer rewards and perks like travel insurance
  • Typically attract a higher surcharge/card payment fee

hand with coinDebit cards

  • Your own money
  • Many accounts have $0 monthly or annual fee options
  • Less risk of debt or additional charges, compared to credit cards
  • May offer a lower or $0 surcharge/card payment fee

Credit cards

How they work

You can use a credit card to spend up to a set amount of funds (your approved credit limit). You're required to pay back what you've charged to the card and need to pay at least the minimum amount listed on each statement. Most credit cards can be added to mobile wallets and there are also some virtual cards.


If you don't pay off your card in full by the statement due date, you'll usually be charged an interest rate – with the average standard interest rate currently 19.94% according to the RBA. Some cards also charge an annual fee.

On top of these account costs, credit card surcharges can range from around 1% to 2% of the transaction value, compared to around 0.5% to 1% for debit cards.


Credit cards are a popular way to free up cashflow and earn reward or frequent flyer points on your everyday spending.

You can also get credit cards with perks such as complimentary overseas travel insurance and airport lounge passes and concierge services that can help with travel, dining and entertainment bookings (among other things).

Credit history

When you apply for a credit card, this is listed on your credit report whether or not you're approved. If you use your card responsibly and make timely repayments, this can help improve your credit score.


Most credit cards offer 24/7 fraud monitoring services to help protect you against suspicious activity. If someone uses your card for fraud, the transaction amount will be refunded under a zero liability policy. If your card is used to make a fraudulent transaction, it won't impact your bank balance or savings.

Debit cards

How they work

Debit cards are linked to your everyday bank account so you can spend your own money. This means there are no repayments, although you do need to have the amount of money needed in your bank account when you pay with a debit card.

If you have a Visa or Mastercard debit card, you can often add it to mobile wallets. There are also some virtual debit cards, although this is more common with business accounts or gift cards.


Debit cards don't attract interest charges because you're using your own money. Most everyday bank accounts that offer debit cards also offer $0 account fee options, meaning you can often use a debit card without paying any extra costs.

It also costs merchants less money to process debit card payments, which is why there is often a lower surcharge compared to credit card transactions.

Note: For tap-and-go transactions, you may find the surcharge is higher than if you insert your debit card and enter the PIN. This is because Visa and Mastercard process the contactless payments. Whereas the eftpos system processes payments where you swipe or insert your debit card and choose "cheque" or "savings".


In comparison to credit cards, there are very few debit cards that offer you reward points or other complimentary extras. Here's a rundown of three debit cards that do:

Apart from these cards, you'll usually be limited to whatever offers Visa or Mastercard have available for cardholders.

Credit history

Unlike credit cards, your applications for debit cards and transactions aren't listed on your report and don't impact your credit score.


Like credit cards, debit cards offer a zero liability policy, which means you will be refunded for fraudulent transactions. Some debit cards also offer fraud-monitoring services. If you're subject to fraud, you will be left without that money until the bank has fully investigated the claim. This could take a few weeks or months.

Which is better: A credit card or debit card?

With a credit card, you get the flexibility of paying off the balance over time, as well as more options when it comes to rewards and other perks. But a debit card often means you will pay fewer fees and have more control over your spending because the money is coming straight from your bank account.

So even though most of us now make payments with cards, choosing between a credit card vs a debit card really comes down to what you want.

Image: Getty

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