By: Alinda Ronnie Kyamureku
Introduction
Debit and credit cards are some of the most widely used payment products in today’s financial system. In this article, we look at the features and uses of debit and credit cards, highlight some basic differences between these two types of cards, and provide tips on how to protect your card details.
What is a Debit Card?
A debit card is a type of payment card linked directly to your current account. When you make purchases with a debit card, the money is immediately deducted from your bank account, so you can only spend to the limit of the money you have available on your account.
What is a Credit Card?
A credit card is a payment card that allows you to borrow money from a financial institution up to a certain limit, known as your credit limit. When you make purchases using a credit card, you are using money borrowed from the financial institution that issued you the card. This money must be repaid with interest at a later date, and there are penalty charges for late repayment. In Uganda, credit cards are typically offered to customers who are seen as able to afford to make the repayments on time. To retain high-value customers, banks may offer credit cards with rewards or cashback incentives.
Uses of Debit and Credit Cards
Though different in some ways, these cards have largely similar functions.
• First, they can be used for online transactions and point-of-sale (POS) payments in shops. Debit card users can only transact up to the minimum balance on their accounts, while credit card users must not to exceed their credit limit and pay their credit card bills on time to avoid extra charges and late fees.
• Secondly, the cards enable customers to use automated teller machine (ATM) services such as withdrawing cash, bank transfers, and checking your account balance, without the need to access a bank branch. However, banks may charge for some of these services depending on the bank product provided.
Features of Debit and Credit Cards
A typical bank card has three important features: a card number, an expiry date, and a card verification value (CVV).
• The card number is a unique series of numbers assigned to each bank card and serves as the primary identifier for the card. The card number is always used in card transactions to identify the account associated with the card and facilitate electronic payments.
• The expiry date is the month and year until which the card is valid. Once the expiry date has passed, transactions on the card are blocked to make it unusable, and a new card with a new expiry date has to be issued by the bank. It is advisable to request your bank for a replacement card well before the expiry date to avoid being excluded from financial transactions.
• The CVV is a three or four-digit security code printed on the back of the card and acts as an additional layer of security to help verify the authenticity of the card during online or card-not-present transactions.
How Can I Get a Debit or Credit Card?
Debit cards are mostly given to customers with current bank accounts. Accounts which require multiple signatory authorisations to transact like joint personal accounts and company accounts, or accounts designed to encourage savings like ordinary savings accounts and fixed deposit accounts may not offer debit cards to holders of these accounts. With most current accounts, debit cards are issued at a fee and attract an annual service charge, although some premium account products may come with free cards. Credit cards, on the other hand, are not offered as part of any account type because they are a loan product.
To obtain a debit or credit card, one has to apply with their commercial bank or financial institution. For a credit card, the bank will need to assess your ability to make the required repayments based on factors such as your income, previously acquired loans, and your loan repayment history. For both card types, the bank will require proof of your identity through either acceptable identification documents like a national ID or passport, and/or biometrics like fingerprints before issuing the card and personal identification number (PIN). While each card comes with a system-generated PIN to enable you to begin the process, you will be required to change the PIN immediately to a number that you can easily remember but is difficult for others to guess.
Since credit cards are a type of loan product, you should read the terms and conditions carefully and take note of the annual interest rate, monthly repayment amount, credit limits, late repayment fees, and any extra charges. Banks offer various types of credit cards with different features and benefits, so if you must apply for a credit card, it is essential to shop around and compare options before choosing one that suits your needs.
Protecting Your Card Details
Because debit and credit cards enable online and electronic transactions, they are a massive avenue for fraud as there is no need for biometrics or signatures to approve these transactions. Therefore, it is important for you to protect your personal details when transacting with cards. The best way is to take extra caution to protect your PIN; this involves not sharing your PIN with people who may access your card and bank account. Also, be careful to use your card only on safe and legitimate websites when transacting online. This prevents identity theft and the use of your personal details in illegal activities.
Whether you lose a credit or debit card, you must report it to your bank immediately to prevent unauthorised use. The bank will deactivate the lost card and issue you a new one for security purposes. When travelling internationally, it is ideal to notify your bank of your travel plans if you are going to make significant transactions to prevent card suspension due to suspicious activity.
Conclusion
Understanding the differences between debit and credit cards is essential for managing your finances responsibly. By knowing how to use these payment cards effectively and responsibly, you can take control of your financial future and avoid unnecessary debt.