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Credit card vs. debit card: What's the difference?

CNBC Select answers common questions surrounding credit cards and debit cards, so you can familiarize yourself with the differences between them, how they work and which is better for your financial situation.

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Credit card and debit cards may seem like the same thing — after all they're both rectangular pieces of plastic — but they act quite differently.

One card provides you with a revolving loan, while the other card subtracts money from your bank account. Depending on the card you choose, you may be held liable for unauthorized charges made by a fraudster. And, you can only build credit with one card.

The next time you pay for something, think twice about which card you use. Below, CNBC Select answers common questions surrounding credit cards and debit cards, so you can familiarize yourself with how they work.

Quick facts: Credit card vs debit card

Credit card Debit card
Buy now, pay laterBuy now, pay now
Interest on balances carried after bill's due dateNo interest charges
Fees: annual, late payment, foreign transaction, balance transfer, cash advanceFees: monthly, overdraft, ATM, foreign transaction
Can build creditCan't build credit
Limited liability for fraudCan have full liability for fraud

What is a credit card?

A credit card provides an extension of money — known as a line of credit or credit limit — that you can use to make purchases. In essence, you borrow money and have to repay it back by the due date, or risk interest and fees.

In addition to using a credit card for new purchases, you can complete a balance transfer or a cash advance.

Credit cards charge interest (APR), and numerous fees, including: annual fee, balance transfer, cash advance, foreign transaction and late payment.

They also provide numerous benefits, such as fraud protection services, purchase and travel insurances, generous rewards and lounge access, that make paying with a credit card worthwhile. For instance, the Chase Sapphire Reserve® offers a $300 annual travel credit for airfare, hotels and other travel purchases, plus a complimentary Priority Pass™ Select lounge access at 1,000+ VIP lounges in over 500 cities worldwide.

Learn more about how credit cards work.

What is a debit card?

A debit card is linked to your checking account and allows you to make purchases. Debit cards work similar to cash, where you typically can't spend more money than you have in your bank account. Any purchases you make with a debit card are automatically deducted from your checking account.

The transactions you can make with a debit card are limited to new purchases and cash withdrawals at ATMs. Balance transfers are not allowed.

Far and few debit cards earn rewards, but some may offer interest on your checking account deposits. Debit cards themselves typically don't have annual fees, but checking accounts often charge monthly account management fees if balance requirements aren't met. However, there are free checking accounts and debit cards, such as Capital One 360 Checking®.

Many debit cards also charge overdraft fees, which occur when you make a purchase greater than the balance in your checking account. You may also incur fees for using an out-of-network ATM.

Can you build credit with a debit card?

No, one of the major disadvantages of a debit card is that you can't build credit. In order to build credit, your card activity needs to be sent to the credit bureaus — Experian, Equifax and TransUnion. This can't be done with a debit card.

If you want to build credit with a card, you'll have to use a credit card.

How fraud protection differs: Credit vs debit

There's no sure-fire way to prevent card fraud, but you can take measures to limit your liability for fraudulent purchases, such as paying with the right card. And the protections differ whether you have a credit card or debit card. The FTC outlines the potential loss you can expect from card fraud, which we explain below.

Credit cards

If you're a victim of credit card fraud, your maximum liability is $50, according to the law. Most card issuers, such as Citi, provide $0 fraud liability. So if a fraudster charges $1,000 to your Citi® Double Cash Card, Citi isn't going to hold you accountable for any of it. Additionally, Double Cash cardholders can benefit from 24-hour fraud protection and identity theft assistance to help pinpoint and resolve issues.

Debit cards

If someone steals your debit card information, you could be fully liable for all of their fraudulent purchases if you don't report them before 60 days after your statement is sent to you. Some banks will monitor your debit card for suspicious activity, but overall, debit card fraud protection does not match the $0 liability guarantees you'll get from most credit card issuers.

If you suspect fraudulent use of your debit card, you'll want to alert your bank immediately to minimize your liability. Here's a helpful table that outlines your maximum loss:

Debit card fraud liability

If you report: Your maximum loss:
Before any unauthorized charges are made$0
Within 2 business days after you learn about the loss or theft$50
More than 2 business days after you learn about the loss or theft, but less than 60 calendar days after your statement is sent to you$500
More than 60 calendar days after your statement is sent to youAll the money taken from your ATM/debit card account, and possibly more; for example, money in accounts linked to your debit account

Bottom line

Credit cards offer the most benefits and protection against fraud, making them the overall best payment option. However, credit isn't for everyone. If you have a track record of overspending, it may be better to stick with a debit card until you can responsibly manage credit. You can consider debit cards that prevent overdrafts, encouraging you to spend within your means. Then once you feel comfortable opening a credit card, check out our list of the best credit cards for all credit ranges: bad, fair/average, good and excellent. And if you already have both a credit card and debit card, opt for using your credit card to enjoy the most perks.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.