Editorial Policy

Visa and MasterCard: What's the Difference?

Erica Sandberg

June 11, 2013

QDear Erica,

I'm looking for a credit card. What should I get? A Visa or a MasterCard? What's the difference between the two? Does one of them give better interest rates? Is one easier to get than the other? — Gene

AHi Gene,

Visa and MasterCard don't issue credit cards. They are card networks and work with the financial institutions that issue the cards (such as banks and credit unions) and the retailers that accept cards. Because they aren't lenders, Visa and MasterCard don't approve applications or set terms such as annual percentage rates, grace periods and penalty fees. One is not easier to qualify for than the other, since neither company makes lending decisions.Ask Erica

Essentially, both Visa and MasterCard help credit (and debit) transactions go smoothly — from the cardholder to the credit card company and then to the merchant. In short, when you charge a purchase, they step in to make sure that the retailer or other business receives what's due to them without delay.

Visa is the largest of the card networks, and a credit card that employs its system is accepted almost universally. However, MasterCard is also accepted pretty much everywhere, so the difference between the two for is negligible.

Card networks make their money through interchange fees. In exchange for their service, they collect a small percentage of the purchase price. As a cardholder, you don't pay it — the merchant (such as the store, cab company, hospital or whichever place you may swipe it) does. Therefore, the merchant decides whether to accept credit cards that are branded with the Visa or MasterCard logo. Most do, though, as you can see from the stickers on store doors that proudly proclaim their willingness to let you swipe those cards with ease.

Not all credit card issuers have adopted the Visa or MasterCard system, so you actually have other options as well. Discover, for example, issues credit cards and uses its own payment processing system. Though it's not quite as widely accepted as Visa or MasterCard, most retailers do accept Discover cards. American Express, which issues both charge and credit cards, also operates independently.

The main reason you'd pick one network over another are the extras they might add to the issuer's product. For example, the issuer's rewards package may stipulate how much cash back you can earn on purchases and the array of travel perks you can enjoy with enough charging. The card networks may offer additional perks to their branded cards, such as extra car rental insurance, extended warranties on items bought with the card and other heightened consumer protection benefits. You'll find details of all the terms on the credit card application. Read them carefully so you can make a smart decision.

Of course the main deciding factor for you will be how widely accepted your card will be — especially if you travel abroad. Visa and MasterCard are more likely to be accepted worldwide. So consider adding their plastic to your wallet, even if you find a better rewards program with American Express or Discover.

More important than deciding between card networks, however, is knowing what kind of credit cards you can qualify for. You should pull your FICO credit score from myFICO.com for about $20 to see where you stand. The higher the score (700-plus range), the more likely you are to be approved for lower interest rate cards with the best terms.

And, as a reminder, do not apply for several cards at once as each time you apply, the issuer pulls your credit, which results in a temporary ding to your credit score. Wait six months or more between applications to allow your credit score to recover.

Got a question for Erica? Send her an email.