Credit Card v Debit Card - Know the Difference

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If you have the option to choose between using a credit or debit card for online purchases, most experts recommend using a credit card. While the risk of fraud is always present, credit cards have additional protections that debit cards do not.  

Most credit cards come with zero-fraud liability. 

Using a credit card provides an extra layer of protection against fraud and makes getting a refund easier.  Certain protections are extended to both debit and credit card transactions under federal law, but most credit cards take these protections a step further by offering their own form of zero-fraud liability. 

If someone gets your credit card number and makes a purchase online, chances are good you won’t be held liable for a single cent of it, if you report it in a timely manner.  However, the same can’t be said about purchases made with debit cards.    

Federal protections are greater for purchases made on credit.

Thanks to the Fair Credit Billing Act, liability for unauthorized charges made with a credit card is limited to $50 for both in-person and online credit transactions, but you need to report the incident within 60 days. 

However, as noted above, most credit cards offer zero-fraud liability, meaning you won’t be on the hook for a penny.  Most credit card issuers will put the fraudulent charge on hold while they conduct an investigation, so you won’t be out the money in the interim. 

Debit cards are a different story.  Because the money you spend comes out of your bank account, your liability depends on how quickly the fraudulent charges are reported.  If reported within two business days, your maximum loss will be $50; more than two business days but less than 60 calendar days, your maximum loss will be $500; and after 60 calendar days, your liability will be 100% of the loss, possibly more if money in other accounts are linked to your debit account. 

When you do report fraud you may have to wait days or weeks to get a refund for a fraudulent transaction made with your card, even if your bank account was drained.   

What happens if you order something online and it shows up damaged or does not show up at all?  Or what if you do not get what you ordered?  If you pay with a credit card, you may be able to withhold payment or dispute a charge if there is an issue with your purchase. Most of the time, your card issuer will even take care of the investigation details, too.  

However, the situation may not be resolved so smoothly if you made the purchase with a debit card.  When you pay with your debit card, the funds are immediately withdrawn from your account, leaving you without the disputed amount until you settle with the merchant on your own.  And, even if your bank takes up your cause, you will have the burden of proof on your shoulders. 

Where debit cards link directly to your bank account and let you use your own money, credit cards offer a short-term loan you need to pay back.  While this may sound scary, this situation could actually be a boon to your credit health and credit score.  By making purchases with your card and paying your bill right away, you will exhibit responsible credit habits that can boost your score over time. 

Remember, debit cards do not help you build credit, nor do they report your account activity to the three major credit reporting agencies – Experian, Equifax, and TransUnion.  The best way to improve your credit is to use the credit card you already have responsibly. 

What to Watch Out For.

If you are using credit instead of debit for online shopping this year, here are some tips that can help: 

  • Pay your balance in full each time your statement closes to avoid interest charges. Most of the time, it makes sense to use credit cautiously and slowly.  Make sure to use credit for purchases you can pay off right away. Interest on unpaid balances can add up quickly. 

  • Shop only on sites with added security features. Most secure sites have a URL that begins with “https.” 

  • Avoid spammy or unprofessional-looking websites. Some fake sites pose as legitimate retailers to get your credit card information to make purchases. 

  • Keep your credit and personal information private whenever possible. Do not provide any more information than you have to.  

  • Monitor your accounts daily (or at least every few days). You can’t protect yourself if you don’t know a fraudulent transaction has taken place.  Check your accounts frequently to be sure they haven’t been hacked. 

Final Thoughts. 

When it comes to making online shopping safer, credit cards have indisputable advantages over debit cards. Not only do they offer their own additional protections, but they also come with greater legal  protections as well. These added convenience and security features are important. 

To report fraud or if you have a general consumer complaint, you may file a complaint with the Attorney General’s Consumer Protection Team.

Consumer Protection
P.O. Box 30213
Lansing, MI 48909
517-335-7599
Fax: 517-241-3771
Toll free: 877-765-8388
Online complaint form

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