Credit or Debit: Are Credit Cards Safer Than Debit Cards?

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Last updated on January 25th, 2024

As similar as they might look, debit and credit cards play very different functions, so you should be strategic when using them. You must also factor safety into your decision-making to avoid fraud and unauthorized transactions. Let’s take a deep dive into the major differences between debit vs. credit cards.  

Table of Contents

Which Is Best To Use When…

  • Making Purchases Online: When online shopping, use a credit card. The rewards, protections, and security are worth it. 
  • Withdrawing cash from an ATM: A credit card will likely charge you a fee for withdrawing cash from an ATM. To avoid this, you should always use your debit card to get cash. Be sure to check for a skimmer before you insert your card. 
  • When shopping at a small business: Sometimes, you will incur a surcharge for using a credit card at a small business or when making a small transaction (typically under $5 or $10). If this is the case, you should use your debit card. 
  • When getting gas: One of the most common places for card skimmers is gas pumps. Try always to use your credit card when filling up your tank. 

How Do Credit And Debit Cards Differ?

When you’re standing at the checkout counter at the grocery store, withdrawing cash from an ATM, or getting takeout from your favorite restaurant, which card do you pull out of your wallet, credit or debit? Maybe you’re always grabbing your credit card to rack up points and miles, or you are worried about charging too much on a credit card, so you stick to a debit card to control your spending.

Debit cards are quickly becoming more than just a way to spend funds in your checking account. But how do debit cards compare with credit cards regarding purchase protection, building credit, rewards, and other key categories?

Fraud And Purchase Protection

Fraud and purchase protections are crucial for any consumer when purchasing. Credit cards are clear winners when it comes to protection, both because of industry standards and federal legislation. Credit card purchase protection is a valuable perk of many credit cards.

Although rules and regulations are depending on the card, you can get coverage for stolen or damaged items within a specific amount of time from your purchase date. Some premium cards also offer return coverage, cell phone protection, travel insurance protection, and more.

Fraud is handled differently between the two cards, but more on that in a bit. The bottom line is that credit cards provide more protection than debit cards.

Earning Rewards

Some debit cards offer rewards programs similar to credit cards. However, if you’re interested in accumulating a lot of rewards through points, miles, or cash back, you are better off with a credit card.

Building Credit

More often than not, a debit card will not help you build credit. Because a debit card is linked to your checking account, when you make a purchase using your card, you’re simply deducting that money from your available funds, not from a lender.

Credit cards work differently. Your credit card will have a predetermined credit limit. In essence, you are borrowing money from a lender against your credit limit each time you make a purchase. Then, when your statement is due, you use your checking account to pay the lender back. You get charged interest if you don’t pay the total amount by the due date. Your account activity, like your credit utilization ratio, on-time payments, and more, gets reported to the three main credit bureaus (Experian, Equifax, and TransUnion). These factors make up your credit score.

A few different debit cards have been designed to help consumers build credit, but the primary way to build credit is actually using credit. Credit-building debit cards could be a helpful choice for those with bad credit or no credit.

Fees

Another significant difference between credit vs. debit is the fees associated with holding and using the card. Some credit cards charge annual fees, interest, foreign transaction fees, cash advance fees, or balance transfer fees. If you don’t know which fees your card charges, you can quickly become inundated with charges you weren’t expecting. Most debit cards are free to use but will likely still charge foreign transaction fees.

Credit or Debit: Differences in Fraud Protection Legislation Between Debit And Credit Cards

It’s everyone’s worst nightmare: your wallet has been stolen, or your card information got leaked in a data breach. Someone has your card numbers and is attempting to make unauthorized purchases on your account. There are two laws that protect consumers in cases of fraud: the Fair Credit Billing Act (FCBA) for credit cards and the Electronic Funds Transfer Act (EFTA) for debit cards. There are some significant differences between the two, so it’s important to understand which is better to use and when.

Electronic Funds Transfer Act: Debit Card Fraud

The EFTA was passed in 1978 to help protect the rights and liabilities of consumers. However, this law is not comprehensive regarding coverage for fraud on your debit card. The most important determination of how much you are held liable for when experiencing fraud is when you report it and whether you physically lost the card or it was stolen online.

If you have physically had your card lost or stolen, and you report it before any unauthorized transactions, you have zero liability for any purchases made after you report. If you report it within two days, you have a $50 liability limit. If you wait 60 days to report, your liability limit goes up to $500. If you haven’t reported a lost or stolen card in more than 60 days, you have no protections and have unlimited liability for unauthorized transactions.

If your card number was stolen online but not physically lost or stolen, you have 60 days to report fraudulent transactions with zero liability. Those 60 days start from the date of the first fraudulent transaction.

Fair Credit Billing Act: Credit Card Fraud

The law states that you are not held liable for those charges if you report your card lost or stolen before any unauthorized transactions on your account. If you fail to report it, you are only liable to a maximum of $50. However, zero fraud liability comes standard on many credit cards. There are also many ways to help prevent credit card fraud, like freezing your credit, which isn’t possible with a debit card.

It’s important to note that not only are the laws different, but the stolen money itself is different. When fraud occurs on your debit card, that money has been taken out of your account. When it happens on your credit card, you haven’t paid off that balance yet, so you haven’t truly lost money. The card issuer can likely give you a statement credit to cover the fraudulent charges, and you don’t have to go through the battle of getting a deposit into your checking account. Depending on the amount of the fraudulent charge, you could have serious financial consequences before you get reimbursed on your debit card.

Conclusion

Credit cards are often safer and more beneficial than debit cards. There are a few situations when a debit card can be sound, but overall, use your credit card for most purchases.

In the showdown of which is better, credit or debit, the winner is credit. However, if you can’t access a credit card, compare the best debit and prepaid cards. These debit cards can potentially offer similar protections and rewards without a hard pull on your credit score.

Related Article: Debit Card Rewards Programs: Everything You Need to Know

Featured photo by StockSnap/PixaBay

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