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Common Sense on Credit and Debit Card Fraud

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People always ask me how to best protect themselves from fraud – especially when it comes to choosing between a credit card and a debit card. Well, it’s time to put the debate to rest once and for all: Credit cards offer consumers the best safeguards against fraudulent losses.

Why? Well, there are a number of reasons:

  1. Card Network Guarantees:  While VISA, MasterCard, Discover, and American Express promise not to hold their customers liable for even a single dollar of unauthorized credit card charges, things aren’t quite so clear when it comes to other types of transactions. Discover and American Express will cover any other card fraud that may arise, but MasterCard and VISA only extend their $0 liability policies to signature debit card transactions. Neither covers ATM transactions, and the only thing you get in terms of PIN debit coverage is VISA’s promise not to hold you financially responsible if it processes the transaction (which isn’t all that helpful considering there’s no way for consumers to determine how a given transaction will be handled).
  2. Nature of the Product: The very nature of purchasing on credit means you aren’t actually putting forth any of your own money until the end of the month, and if you aren’t revolving a balance you’ll actually have an extra 21 days to pay before you’re considered “late” and finance charges start to accrue. With a debit card, on the other hand, money will be removed from your account in real-time. In other words, even if the liability coverage happened to be equal, dealing with credit card fraud would be as simple as not paying for unauthorized charges, while you’d still have to actually go about getting your money back with a debit card. That’s a big difference, especially if you’re short on cash or you’ve written a few checks that you’re now unable to cover.
  3. Psychological Factors: Piggybacking on the above, debit card fraud is simply more stressful to deal with than credit card fraud. Sure, your heart might skip a few beats when you see unfamiliar charges on your monthly statement, but that’s nothing compared to the shock of finding your bank account completely drained.

So, the moral of the story is that you should make a credit card your primary spending vehicle due to the superior fraud protections, if not the rewards and convenience. But there’s something else you should take away from all this too. The combination of $0 liability guarantees from the card networks, the added safety net provided by federal law, and the fact that fraud only impacts around 0.06% of all card transactions means that you really shouldn’t worry about the potential of incurring losses.

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