We've all been at the cash register and been asked "Would you like this as debit or credit?" On the surface, its just the difference between keying in your PIN or signing a receipt, but there are actually a lot of interesting things going on when you make a purchase with a credit or debit card,

The Machine

When you swipe your card at the grocery store to purchase something, the machine that you are swiping is connected to a dial-up connection which sends your information to your bank or credit union and verifies that you have appropriate funds to make the transaction.

Debit?

To use a debit cards you load money onto the card, and cannot make a purchase that exceeds the limit of what you have on the card.

At the point of sale, your card is immediately charged for the transaction, and funds are withdrawn. This is achieved because your PIN gives the merchant instant access to charge you for your purchase.

Credit!?

Credit cards give you a set spending limit and you have to pay it off each month. Think of it like this: if you have a credit limit of $1,000, the bank or credit union has loaned you this money and each month you have to pay it off or accrue interest and late fees on the portion you've spent.

You don't enter your pin when using a credit card because your signature is the authorization to charge you for the purchase. Your credit card isn't charged immediatley when using credit because merchants usually wait until the end of the day and enter all the numbers for the day in one batch. Because of this, it may takes days for purchases to be withdrawn from your account.

The Store

While there are numerous benefits to a merchant accepting a credit or debit card (its more secure than a check, and if you overdraft and don't have the money in your account, they still get paid), merchants pay for the convenience to be able to accept cards.

Depending on how little the transaction is, it may not be practical for a store to make a sale because of the fees involved. For instance, the typical rate charged to a merchant everytime someone makes a transaction with a VISA card is about 2%. It may not seem like a lot, but at many smaller stores and bars, if everyone that comes through in a day spends a small amount of money, that 2% can eat into profits pretty quickly.

So Which One?!

This is a question that only you can answer after thorough research and an examination of your personal needs. However, most college aged people choose to have one debit card for everyday purchases, and a credit card for emergencies and large expenses.

How do you use your credit card? Let us know in the comment section!

DeAndre'

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