Credit Cards vs. Debit Cards vs. Check Cards
High security is one of the best reasons to use a credit card to pay for all your purchases (and then paying off the card at the end of the month). Credit cards provide excellent protection against fraud, transaction errors, and disputes with merchants. Under the Fair Credit Billing Act, your liability for unauthorized charges is at most $50, and in many cases individual credit card issuers limit your liability to zero. If you have a dispute with a merchant (such as non-delivery of good purchased), you can initiate a charge-back on your credit card, and your credit card company will investigate your claim.
Debit cards are essentially an extension of your ATM card. Debit cards offer greater convenience than credit cards because you simply enter a PIN code at checkout, rather than having to sign a receipt. Since debit cards immediately deduct the amount of the purchase from your bank account, it is impossible to rack up debt with a debit card. However, debit cards generally offer less protection than credit cards. The Electronic Fund Transfer Act limits your liability for theft to $50 if reported within 2 days and $500 if reported within 60 days, although some individual banks may offer better protection than the law requires. It is much more difficult for a thief to use a stolen debit card than a stolen credit card. A thief would have to both discover your PIN and steal your physical debit card. However, once your card and PIN have been compromised, your checking account is at risk. While steps are being taken to extend greater fraud protection rules to debit cards, debit cards generally do not allow you to dispute charges or place charge-backs like credit cards do.
Check cards attempt to extend the additional protection of credit cards to debit cards. Check card transactions are processed exactly like credit card transactions; however the money is deducted from your bank account like with a debit card. Check cards offer greater consumer protection than debit cards. Unfortunately, check cards lack the PIN code security of debit cards.
In theory, credit cards, debit cards and check cards all provide protection against fraud. The problem with debit and check cards is that they draw the money directly from your checking account. If your credit card is stolen, it’s no big deal because it is the credit card company’s money that is on the line. However, if your check or debit card is stolen, a thief can clean out your bank account before you have time to cancel the card. Although you ultimately will get your money back, the refund process could take weeks. In the meantime, you’re stuck without your money, which could lead to bounced checks and inability to pay other bills.
Credit cards offer the best overall security of any of the three payment methods. You get full fraud and consumer protection. Although fraud prevention is not as good as debit cards, it is inconsequential because thieves can’t empty your bank account. Debit cards offer good fraud protection and good fraud prevention through PIN code security, but because the money comes directly from your bank account, it could lead to other problems. Check cards offer the consumer protection services of credit cards, but function like debit cards without the PIN code security.
For most transactions, security is not a big issue. Here are some common sense guidelines for protecting yourself against fraud:
- When using your debit card, shield the keypad while you enter your PIN, so that thieves can’t see your PIN code. Similarly, don’t write down your PIN number in your wallet.
- For online purchases, use a credit card only.
- Sign your cards immediately.
- Check your account regularly and report unauthorized transactions immediately.
- Keep the customer service numbers for your cards in a safe place, so in the event your cards and/or wallet are taken, you can quickly report them stolen.
