Things to Know About Debit Cards

by Beverly Bird, Demand Media
    Debit cards are quite different from credit cards.

    Debit cards are quite different from credit cards.

    Nobody wants pull out a checkbook every time he makes a purchase. Your debit card is your ticket to convenience so that you don't have to. When you swipe it, you've paid for your goods. However, debit cards usually only have as much buying power as you have money in your bank account.

    Definition of Debits in Bank Accounts

    A debit is any sum deducted from the balance in your account, and your debit card links to your account. If you have $500 in your checking account, you can use your debit card to purchase $500 of services or merchandise. When you make a purchase, the debit subtracts from that $500, usually immediately. Therefore, if you've written checks against the balance in your account, they’re likely to bounce unless you have overdraft protection. When you use your debit card, it's not a loan from your bank; your bank won't charge you interest, but neither will they front you the money if you don't have it.

    Does a Debit Card Repair Credit Like a Secured Credit Card?

    If your credit history needs repair, having a debit card won’t help. The card doesn’t reflect on your borrowing or payment history because you're not borrowing money for the purchases you make with it. You're only accessing your own funds in a convenient way. On the other hand, secured credit card lenders report to the credit bureaus. You make a deposit with them as collateral so if you don't pay off what you owe, the lender can use the deposit to cover your purchases. If this happens, the lender will report your defaulted payments to the credit bureaus. By the same token, if you make regular payments, this is also reported and it will help repair your credit.

    Can Debit Card Statements Be Used for Tax Receipts?

    The Internal Revenue Service always wants proof of your deductible expenses – at least when you're audited. Because your debit card is tied to your bank account, your purchases will appear on your statements. This is acceptable proof for the IRS, provided you can substantiate the nature of the debit and provided the expense is deductible in the first place. Your debit card entries should show the location of the purchase, the date and the purchase price.

    Does the New Credit Card Act Pertain to Debit Cards?

    Two important legislative changes occurred in 2009 and 2010, affecting both debit cards and credit cards. However, they're two separate laws. Because debit cards and credit cards are two different things, the legislation doesn't overlap. Under the 2010 law affecting debit cards, banks can't charge you overdraft fees if you use your debit card for a purchase that exceeds your bank balance – unless you sign up for the convenience of being able to make purchases that will overdraw your account. If you don't elect this option, your bank will decline the transaction when you try to use your debit card because you don't have enough money in your account to cover it. The Credit Card Act of 2009 addresses interest rates and other credit variables that don't apply to debit cards.

    How Long do Pending Transactions Last on Debit?

    How long debit card transactions pend on your account depends on your bank. Each institution has its own procedure for how and when debits are paid, with an order of priority over other daily transactions. Typically, debit transactions receive high priority – your bank deducts the amount from your account right away. The difference usually reflects in your "available balance" versus your "current balance." Your current balance reflects your balance before the latest transactions post. For example, if you had $500, and you purchased $25 worth of gas with your debit card, your current balance would typically be $500 and your available balance would be $475. Your available balance is the "real" number. Banks often post transactions to your account in the evening, so the next morning, your available balance and current balance should be the same – your pending transaction has officially posted.

    About the Author

    Beverly Bird has been writing professionally since 1983. She is the author of several novels including the bestselling "Comes the Rain" and "With Every Breath." Bird also has extensive experience as a paralegal, primarily in the areas of divorce and family law, bankruptcy and estate law. She covers many legal topics in her articles.

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