Debit Card, Credit Card and Micro-Credit Basics

Debit Cards / Credit Cards

Debit Card

A debit card is a plastic card that provides a cardholder electronic access to his / her bank account. It can be used to withdraw funds or to make purchases using money in the bank account. Since a debit card is essentially linked to a checking account (saving / current), it is also known as a Checking Card. A balance in the checking account is must for the use of debit card.

Credit card allows its holder to buy goods and services based on the holder’s promise to pay for these goods and services.

Credit Card

A credit card is a payment card which allows the cardholder to pay for goods and services on the basis of line of credit granted to him / her by the issuing bank.  A credit card essentially creates a revolving account from which cardholder can borrow money for payment to merchant (and also withdraw cash). A credit card is not linked to a bank account but is linked to the bank / financial institution which has issued it.

First Credit Card of the world

The use of Credit Card first started in 1920s in United States of America for selling the fuel to the automobile owners. Later, it reached the customers when when Diners Club was launched in early 1950s. In 1958, the Bank of America issued the BankAmericard in the California state and this is known to be the first successful modern credit card.

Differences between Debit Card and Credit Card

  • A debit card is like an electronic cheque book, which is linked to the account of cardholder. Balance in the account is essential to use debit card. Credit cards give a line of credit to the cardholders and they don’t need a linked bank account. Credit Card payment is like a loan which needs to be paid back within a fixed period (such as 30 days).
  • There is no monthly bills to be paid on debit cards. In case of Credit cards, monthly bills need to be paid by the customer. Late payments are charged a high interest.
  • Obtaining the debit card is quite easy. Now a days, most banks provide Debit cards to checking account holders. After the RBI guidelines in 2005; obtaining a Credit Card has become difficult and it depends on many factors including credit score of the applicant.
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