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The holidays are here, and you are ready to go holiday shopping. You’ve read our tips on how to make your holiday budget work and used that information to make your list (and check it twice). Something we hear from our members quite a bit while they are holiday shopping is what the difference is between using debit or credit at the register. So, we thought we would provide some helpful information regarding the difference is between “credit or debit” and when you should use which one.

What is the difference between Debit and Credit?

“I went to pay with my debit card, and the clerk asked me ‘debit or credit.’ What gives?”

The main difference between a debit card (also known as check card) and a credit card is whether you are actually borrowing money or not. Additionally, a debit card can be processed as either a debit transaction or a credit transaction. This question of “debit or credit” when using a debit card is often confusing.

When you use a debit or check card, regardless of if you process the transaction as credit or debit, you are using funds available in your account. This is different from when you use a credit card, which borrows money from a credit card company or third-party settlement organization (TPSO).

What is the difference between a debit transaction and a credit transaction?

We always recommend that if you have the money, you should use your AmeriChoice Federal Credit Union debit card before using your credit card (visit our post on making a holiday budget for more tips on making the holidays more economically manageable). When you make a purchase this holiday season with a debit card, you will be asked to either choose “credit or debit.” If you select debit, money in your account will be directly transferred to the merchant after you enter your four-digit pin code. This is the closest type of transaction to using actual cash. Additionally, you may have the option to receive “cash-back”, which is helpful if you are busy completing all the tasks on your holiday list.

When you select credit, your transaction will be processed through a credit card company such as VISA or MasterCard. The credit transaction will often require a signature and the merchant may pay more fees and may not see that money for a few days because of processing.

What should I choose, credit or debit?

Small purchases or small businesses: Debit

Let’s say that you are purchasing some holiday packaging. This could include the typical essentials such as gift boxes, wrapping paper, and some bows for on top. Since there are more fees associated with credit transactions than with debit transactions, it is often considered courteous to pay using debit. This is especially true for small businesses since credit transaction fees can really hurt their ability to stay in business. So do these small businesses a favor and say “debit please.”

Credit not accepted: Debit

Some businesses do not accept credit transactions. You generally see this with smaller businesses because they do not want to pay the higher percentage fees for credit transactions. Debit transactions typically have a lower merchant fee. Also, because debit transactions are an immediate fund transfer, the merchant will receive funds without any delay.

Fast, ATM-like money: Debit

You are in the checkout aisle with your family about to make your purchases and your child reminds you that they need money for a school activity tomorrow. The last thing you want to do is run across town to your branch or ATM. If you are using your AmeriChoice debit card, the clerk might let you add “cash-back” to your purchase. The debit transaction will allow you to withdraw funds immediately just as if you were at the ATM.

Larger purchase or Online Shopping: Credit

If you are shopping online this holiday season and you use your check card, it will most likely transact as a credit card. The benefit to this is that credit transactions often carry additional security that isn’t offered with a debit transaction. Therefore, you can be assured that your money is safe. If your debit card information is lost or stolen, your account is insured and you will be protected from fraudulent charges.

Cashback or bonus rewards: Credit

No, this is not the same as cash back (ATM) perk when you use a debit card at checkout. Some institutions, including AmeriChoice Federal Credit Union, reward their customers with reward programs (learn more about our Freedom, Stars & Stripes Member Rewards program to enroll). These reward programs normally use “non-PIN debit card purchases” to determine the rewards. These rewards can include monthly cash back or access to other perks, such as gift cards or free services.

Improve credit score: Neither

Using your debit card, regardless of if you process the payment as credit or debit, it will not improve your credit score. If this is something that is important to you, you may want to consider a secure credit card or you can apply for an AmeriChoice Platinum or Platinum Preferred credit card. Read our guide on how to improve your credit  score, for other tips.

Insufficient funds: Neither

Regardless of whether you go debit or credit, if you don’t have enough money in your account, the transaction will be declined. The only way around this is to use an actual credit card with enough available balance to process the purchase. However, using cards (check or credit) can lead to impulse decisions. The convenience of pulling out a card instead of paying with cash is very tempting, especially if you do not have the funds to support your purchases. If it is hard for you and your family to stay within a budget, using cards might not be the ideal option for you.

Recommendation

Debit card transactions can often be more beneficial to the business, especially since it is accompanied with lower fees and faster access to cash. However, unless you are trying to be considerate to a small business owner, then we recommend going with “credit.” This will provide you with additional fraud protection and will sometimes even reward you with cash back from your credit union or financial institution.