I know that many people are against using a credit card. They see that it is too easy to overspend and get into credit card debt. I also see those in favor of using credit cards for rewards. Personally, I use a credit card solely because of the rewards I earn. I take the cash back and use it to invest in the stock market.
There is one other reason to use a credit card over a debit card: security. I know with the data breach at Target last year and now the breach at Home Depot this year, more and more consumers are opting to use cash only. This is a solution. But if you are still debating between debit and credit cards, here are some things you should understand about security and your liability.
Credit Cards
When it comes to having your credit card stolen, you have protection. The most you are out of pocket is $50. Plus, when unauthorized charges are placed on your card and you let the credit card company know, they will pend those transactions. What this means is that while they look into the charges to determine if fraud occurred, you won’t pay those charges and interest will not accrue.
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Debit Cards
The same cannot be said about debit cards. First, your liability depends on when you report the fraud. In some cases, if you wait too long to report the fraud, you still have to cover all of the charges. While this is a problem, there is still another problem. When your debit card has charges to it, the money comes out of your bank account, regardless if you made the charges or not.
A few years ago, my debit card was hacked and $300 was taken from my account for random purchases. The bank investigated and it took them close to 2 months to come to a conclusion. While they investigated, I was out that $300. Luckily I had money in my emergency fund to cover me. Had the fraud been thousands, I don’t know what I would have done. Luckily, the bank agreed that the charges were fraudulent and I was then refunded my money.
New Protection For Debit Cards
MasterCard recently announced that it is expanding it fraud coverage for debit cards. Now, regardless if you sign or enter your PIN when you make a purchase, you will have zero liability. This means that if fraud occurred, it won’t matter if you wait 60 days to report it, you will not be held liable. However, the money will still be gone from your account until the investigation concludes.
Stronger Security For Credit Cards Too
With this latest breach at Home Depot, US credit card companies and retailers are accelerating plans to introduce chip technology in credit cards here in the US. If you traveled overseas, you already know about this technology. Basically, your credit card will have chip in it. When you insert your credit card into the machine, you have to enter a four digit PIN. No longer will you have to sign. In Europe, where they have been using chip technology for some time, fraud has decreased over 60%.
Final Thoughts
Regardless of which method you use to pay for goods and services, it is important to know your liability when it comes to fraud. With MasterCard introducing better protection for consumers and chip technology on its way, you can be certain that you will keep your hard earned money. But just know with a debit card, you lose the money until the bank finishes its investigation.
