When you use your debit card to pay for purchases, you’re often given a choice to use your debit card as credit. It might sound like you get to use your debit card as a credit card, but this isn’t the case.
Choosing between debit and credit at the payment terminal has more to do with how the payment is processed. Let’s take a look at the details , and you’ll see what I mean.
What Happens When You Choose Debit?
A debit card is linked to a bank account, such as a checking account, and you can use the card for purchases. Some consumers prefer to use their debit card as a budgeting tool since you generally can’t spend money you don’t have.
If you select the debit option when you’re at the payment terminal, you’re asked to enter your personal identification number, or PIN. If it’s the correct code and you have enough in your account to cover the purchase, your payment will be approved. The amount of your purchase is deducted from your account.
[Read: Best Rewards Credit Cards.]
Most banks don’t charge a fee for using the PIN option. But check with your bank’s disclosure statements to see whether there’s a fee for it, so you don’t get stuck with unexpected costs.
Opting for debit means the transaction happens right away. But if you choose credit, the transaction is handled differently.
What Happens When You Use a Debit Card as Credit?
If you select credit, this doesn’t mean you’re buying the items on credit and that there’s a grace period. It does mean, however, that there’s a lag time before the funds leave your account.
It takes longer because the transaction doesn’t happen in real time. It can take up to two or three days because now the merchant’s credit card processor and the payment gateway (e.g., Mastercard or Visa) are involved.
But don’t assume that you can spend money you don’t have because there’s basically a float time. If you don’t have enough money in the account, your transaction may be denied during the verification process. Even if you slide through that checkpoint, you run the risk of having insufficient funds when the transaction hits your account.
You could always set up overdraft protection, but I don’t recommend that. It’s better to have your card denied than to buy something you can’t afford at that moment. It will be uncomfortable, but I promise that you won’t die of embarrassment!
[Read: Best 0% APR Credit Cards.]
Can You Build Credit With a Debit Card?
I’ll be really clear about this: You can’t build credit with a debit card. When you use your debit card, you’re spending your own money even if you choose credit at the payment terminal.
Have you noticed that your debit card also has a payment network logo? You might see a Mastercard or Visa logo, for example. This logo can make it confusing because we associate a company, such as Visa, with credit cards. But the logo on your debit card just represents the payment gateway used by your bank.
With a credit card, you usually have a grace period between 21 and 25 days. The items you purchased are in your possession, so you’re using credit to pay for them. As long as you pay the bill in full and by the due date, you effectively get an interest-free loan on your purchases.
Using a credit card responsibly also helps you build a great credit score. An excellent score helps you save money in many areas of your life. But a debit card doesn’t help your credit status.
How to Decide If You Should Choose Debit or Credit
For those who use their debit cards as budgeting tools, selecting debit can make tracking your money a little easier. A debit transaction deducts funds from your account before you leave the store. So, when you check your account that night, you’re seeing an updated version that reflects your true balance.
The decision to select credit stretches out the transaction for a few days. But choosing credit at the payment terminal might be wise if you’re in a crowded store and you feel uneasy about punching in your PIN.
[Read: Best Cash Back Credit Cards.]
If you’re trying to support small businesses, using your debit card as a debit transaction is less costly to the merchant. A credit transaction adds layers to the process, and there are fees along the way for the merchant.
The choice is yours. As long as you understand that pressing credit doesn’t magically turn your debit card into a credit card, you’ll be fine.
More from U.S. News