You are safer using credit cards than debit cards. Credit Cards fall under the 1974 Federal Law called the “Fair Credit Billing Act.” Among other things, the law provides that if there is fraudulent use of your credit card, you can never be held responsible for more than $50. Because that amount is so small to most credit card companies and they value your business and don’t want to be thought of non fraud-proof enough, they often waive that fee completely. Mostly, there are no special rules on how quickly you catch the fraudulent use.
On the other hand, Debit Cards are governed by the “Electronic Fraud Protection Act,” which has a number requirements and restrictions.
First, you have no liability only if you catch the fraudulent activity before your card is ever used. Next, you only have up to the $50 amount you can be held responsible for if you catch the fraudulent activity within 2 days of the fraudulent use. It’s up to $500 liability to you if you catch it within 60 days of the fraudulent use, and unlimited if over 60 days.
This means it can be used to not only drain your entire bank account the debit card is linked to, but if you have overdraft protection linking it to another account, that other account can be drained also!
Even if you do catch the fraudulent use immediately, it may be entirely up to you to actually call the police and have a police report filled out (though of course, this is a waste of time), and you may have to take other actions directed by the bank that issued the debit card.
There is no way to completely protect yourself from fraud, but the protections given by using a credit card (even if you can only get a secured credit card) can make a world of difference.
The times it is really important to NOT use a debit card (use a credit card instead), are:
1. Online – for anything! There are too many risks once your card number is on the internet
2. Large purchases – for anything! Only credit cards always put an immediate (temporary) hold on the purchase, giving you more time. Also, many credit cards provide their own warranties on large purchases.
3. Dining out. Anytime you hand your card to someone else, there is more risk for fraud.
4. Buying gasoline. Again, only a credit card will place an immediate, but temporary hold, on the purchase so you can catch fraud.
5. Putting down an up-front deposit for anything. Credit Cards will use the immediate, temporary hold.
6. Automatic Bill Payments. The use of debit cards could lead to accidental overdraft charges and bank fees.
All in all, it’s safer – by far – to use credit cards. There are stronger Federal laws in place.
And one other benefit, many credit cards offer “rewards” programs of up to 2% cash back on purchases. If you don’t have a credit card, you should look into getting the best one for you. There are websites that can help you choose the one that best suits you, such as Magnify Money. If you have any difficulty getting one, consider asking someone to be a co-signor, or getting a secured credit card, at least at first.
