Credit Card vs Debit Card: Which Is Safer?
Table of Contents
- By Steven
- Published: Apr 22, 2024
- Last Updated: Apr 30, 2024
Identity theft and card fraud are the main concerns associated with using debit and credit cards. Like any financial instrument, credit and debit cards are susceptible to certain security threats that can compromise cardholders' information and lead to credit card fraud or debit card fraud. Common examples of such financial security threats include card theft, phishing, skimming, malware, card cloning, vishing, weak passwords/PINs, and social engineering. However, certain payment security measures are in place to address these threats. For instance, the Payment Card Industry Data Security Standard (PCI DSS), a set of security standards, protects credit card data. These security standards ensure that all companies or businesses involved in storing, processing, and transmitting credit card information maintain a secure transaction environment/platform.
Choosing the right card type should be a top priority to protect you from unauthorized transactions and card-related fraud, especially with the increasing number of digital payments and online transactions. The debate of credit cards vs. debit cards is something that always comes up. However, it is best to choose a secure card because it offers additional protection against unauthorized use and card fraud. Generally, a secure card uses multi-factor authentication to prevent unauthorized user access, making it hard for hackers to access your account, even if they have your card information. In addition to your card number and personal identification number (PIN), multi-factor authentication requires you to provide an additional identification type, which may be a facial or fingerprint identification.
Besides offering fraud protection, a secured card can help you build your credit score if you use it prudently, and they usually have low fees and interest rates compared to unsecured cards. Having an unsecured card poses a major risk to your financial security. It offers little protection against unauthorized transactions or fraud, meaning that anyone who steals your card information can access your account. Although card companies issuing unsecured cards maintain fraud protection policies, it can be stressful and time-consuming to dispute fraudulent debits on these cards. When considering getting a card, choose a card with advanced security measures whose issuer has a good reputation in the card industry. In addition, look out for a card with low interest rates and fees.
The Fundamentals of Credit and Debit Cards
Debit and credit cards allow users to make convenient purchases at any physical retail store and online stores. They share a visual resemblance, both having magnetic strips, 16-digit card numbers, EMV chips, and expiration dates. While both look identical, there are certain differences between credit cards and debit cards. The major difference is the source of the money spent while paying for goods or services using your card. When you use a debit card, you spend money or cash directly from your bank account. This means the funds in your account must be sufficient to pay for goods or services when using your debit card. In contrast, a credit card offers the flexibility of borrowing funds from the bank or card issuer, subject to a pre-approved limit.
Generally, you can think of the credit card as an approved credit line by the issuer or bank and the debit card as an instant check. Knowing the differences between debit cards and credit cards helps you to understand the benefits and risks associated with each. Essentially, knowing when to use debit cards vs. credit cards can help you adopt better and healthier spending habits and improve your financial security. For example, a credit card used responsibly can help you build or rebuild credit scores, but a debit card will not build a credit score for you. Similarly, while using your debit card can help you avoid debt accumulation, excessive usage of your credit card can lead to humongous debt. Also, it is important to consider financial security when comparing credit cards vs. debit cards. Debit cards linked to bank accounts offer lesser consumer protections against card fraud compared to credit cards.
What is a Credit Card?
A credit card is a payment card that offers users a line of credit to make convenient purchases and meet certain vital everyday expenses. Credit cards come with pre-approved limits against which cardholders can borrow to repay in the future. Besides the standard credit line, credit cardholders may also enjoy a separate cash line of credit, which offers them the opportunity to borrow funds as cash advances. However, cash advances from credit cards often have varying terms compared to a cashless credit card balance. For instance, such transactions attract higher interest rates and do not have grace periods. The cash line of credit can be accessed at ATM points and through bank tellers, and it is predetermined based on a customer's credit ratings.
While paying back the balance on your credit card is important, it is also possible to negotiate credit card deferment in times of financial hardship. Credit card deferment allows credit cardholders to skip or postpone payments for a limited time if it becomes difficult for them to make the minimum payments on their credit cards. While some banks or card companies will not stop accruing interest on customers' credit cards, others may lower the annual percentage rates (APRs) or reduce the interest cost. The percentage reduction enjoyed by any customer under the deferment program primarily depends on the bank's or credit card company's policies and the cardholder's credit history. Negotiating a credit card repayment has some advantages. It could save cardholders from being reported to credit bureaus for late credit card payments. Also, getting temporary relief from making repayments can help a customer recover quickly after suffering a financial setback. However, you must understand that the money owed is not forgiven, and you will still have to repay it at the end of the approved deferment period.
Generally, credit cards are issued on the condition that customers repay the money spent or borrowed on the card with any applicable interest or other charges as agreed by both parties (the issuer and the cardholder). Customers can pay back either in full by the due billing date or over a period of time. According to the Credit Card Accountability Responsibility and Disclosure Act of 2009, credit card issuers must offer at least a 21-day grace period before interest on purchases can start to accrue. Knowing if you will be paying interest on any money borrowed using a credit card, if you pay your credit card balance timely and in full each month, or if you will carry a balance every month is important. This will help you when it comes to deciding which credit card to obtain and how to choose the best credit card that suits your income.
What is a Debit Card?
A debit card is another payment card, but it works by deducting or pulling money directly from your checking account when you pay for goods or services at physical retail shops or online stores. It allows you to pay for things without having to carry cash. You can also use it on an Automated Teller Machine (ATM) to withdraw money from your checking account whenever you need cash. Generally, debit cards relieve cardholders from the need to carry checks or cash around.
Customers' spending on their debit cards is limited to the amount of funds in their bank accounts. For instance, you cannot spend $75 on your debit card if the deposit in your checking account is only $50. This is why you cannot accumulate debt by using a debit card for payment. Unlike a credit card, a debit card only permits you to access what is available in your checking account. You can get a debit card when you open a checking account with any bank. Alternatively, you can obtain a prepaid debit card if you do not have access to a bank account. A prepaid debit card has a preloaded amount on it, and the cardholder's spending is limited to this amount.
Debit Card vs Credit Card Security
The security of debit cards vs. credit cards is a thing you must understand to enable you to make an informed decision as to which one to use for each particular payment. While both cards offer fraud protection, credit cards generally offer better protection than debit cards. If you become a victim of debit card fraud, money will be stolen directly from your bank account, a bank account takeover will occur, and the chances of getting your money back will be slim, even if your bank investigates. However, there is a high chance that a financial institution or card company will refund fraudulent debits or charges on your credit card after investigating a credit card fraud.
Since credit cards offer better fraud protection, they are better and safer for online purchases than debit cards, especially on trusted websites. With both cards, there is zero liability if a lost card is reported before any transaction is made on it. However, if unauthorized purchases are already made on such a card, certain liabilities will apply, depending on when the loss was reported. Although the dispute resolution process for credit cards and debit cards share some similarities, they are different in how they work. For instance, if you intend to dispute a fraudulent debit card transaction, your bank initiates the dispute and then contacts the merchant for resolution. On the other hand, a cardholder must initiate a credit card dispute with the issuer, who, in turn, reaches out to the merchant to look into the dispute and resolve it.
Fraud Protection Policies
As cards have become crucial for several online transactions and managing expenses, card companies and financial institutions now generally offer measures to prevent debit and credit card fraud. Both credit and debit card issuers provide a range of fraud protection features to safeguard cardholders' funds and accounts. The table below explains the security features offered by card issuers to enhance debit and credit card securityFurthermore, regarding credit card vs. debit card security, it is safer to use credit cards, knowing that if it gets lost, stolen, or compromised, your card issuer will most likely take responsibility for charges not authorized by you. Credit card issuers offer zero liability protection, meaning you do not have to pay for unauthorized credit card charges made fraudulently without your consent. On the other hand, a debit card user will only enjoy zero liability protection if they report their lost or stolen debit card to their financial institution before any fraudulent debits can be made with the card. Otherwise, the cardholder is liable for any fraudulent purchases made with the card, and the level of liability varies depending on how long it takes them to report it.
Dispute Resolution
One of the common reasons for credit and debit card disputes is fraudulent transactions. As a cardholder, it is important to understand what card disputes are and the differences between debit and credit card dispute resolution processes. Generally, a debit card dispute happens when a cardholder raises questions about particular transactions, including fraudulent ones, made with their debit cards. The cardholder can initiate a dispute by reaching out to their financial institution with details of the transaction being disputed. In response, the financial institution will contact the merchant to have the complaint resolved. Similarly, a credit card dispute occurs when a customer contacts their card issuer to dispute a particular charge, especially those made without their consent. Once the card issue receives the complaint, it will contact the merchant's acquiring bank, which then reaches out to the merchant to ask for details about the transaction being questioned.
Generally, merchants are required to respond promptly to credit card disputes and provide all relevant details, including communication with customers, order information, and purchase receipts. Otherwise, they risk financial losses in the form of chargebacks. While a card issuer generally has up to 90 days to resolve a credit card dispute, the timeline for resolution can vary depending on the credit card issuer and the dispute type. Similarly, the timeframe for resolving a debit card dispute can differ depending on the bank involved and the reason for initiating the dispute. Notwithstanding, merchants only have a limited time to respond to and resolve debit card disputes.
The Impact of Federal Regulations on Card Security
Any business accepting debit or credit cards for customers' purchases must comply with certain federal laws and regulations to ensure the security of such transactions and consumer protections. For example, all businesses accepting credit cards must adhere to the PCI DSS (Payment Card Industry Data Security Standard) and the PA-DSS (Payment Application Data Security. While the PCI DSS are rules designed to reduce credit card fraud incidence, the PA-DSS mandates all POS (point-of-sale) equipment and terminals to comply with the PCI DSS. Both rules are enforced by the PCI Security Standards Council.
In 2022, the Federal Reserve Board finalized updates on rules to enable debit card issuers to allow merchants to select between at least two uninvolved or separate networks when processing and routing debit card transactions. The rule promotes competition between networks and propels them to enhance their fraud-preventive capacity. Furthermore, a couple of federal laws and regulations limit how financial institutions and card issuers can obtain and use data about their customers. For instance, under the Gramm-Leach-Bliley Act (GLBA), financial institutions are required to provide consumers with a privacy notice revealing that a customer's nonpublic personal information is shared with independent third parties. Such information includes debit and credit card numbers. The notice must mention customers' ability to turn down the sharing of their nonpublic personal information in certain situations and how they can do that.
Credit Card Regulations
One of the federal regulations protecting credit card users is the Fair Credit Billing Act (FCBA). Under this Act, a cardholder faces no liability for any fraudulent charges once they report that their credit card is stolen or missing. Notwithstanding, the FCBA equally stipulates that a customer cannot be liable for more than $50 for any fraudulent transactions on their credit cards. Typically, if a credit card number is stolen but the cardholder has the physical card, the consumer risks zero liability for any fraudulent transactions on the card.
Credit card users also enjoy some consumer protections in certain situations under the Fair Credit Billing Act. For instance, consumers are protected when they pay for products or services using their credit cards and believe they were overcharged for such goods or services. Similarly, the Act protects them when they purchase products and the delivered products differ from what they ordered or are faulty or if the ordered products never arrive.
Debit Card Regulations
The Electronic Funds Transfer Act (EFTA) protects customers of financial institutions who use debit cards. It primarily safeguards consumers who manage their finances using electronic means. Electronic means include, among others, the use of debit cards. The EFTA requires banks/financial institutions and other third parties involved in electronic fund transfer (services) to disclose certain information to customers before allowing and approving any kind of transactions. In addition, consumers must be provided with a summary of liability regarding unauthorized transactions, including those made on stolen or lost debit cards. The liabilities of debit card holders under the EFTA are outlined below:
- A card user who reports the loss or theft of their debit card to their bank/financial institution before any fraudulent transaction is made faces zero liability
- A consumer faces a liability of up to $50 for any fraudulent debit card transaction if they report the loss or theft of their debit card within two days (48 hours)
- A consumer's liability for fraudulent transactions on their debit card goes up to $500 if the loss or theft is reported to their bank after two days but within 60 days
- A consumer is liable for any and all fraudulent debits made on their debit card if they fail to report its loss or theft within 60 days
Best Practices for Enhancing Card Security
You can enhance your card security in many ways to avoid credit or debit card fraud. Common practical ways to do that include signing up for transaction alerts, checking your balances frequently, and protecting your card PIN. Others are promptly reporting strange activities on your card, using a secure connection and private device for online transactions requiring your card PIN or CVV, and using the security features on your credit card app.
Monitoring and Alerts
Setting up transaction alerts, regularly monitoring your transaction history, and reviewing your statements can enhance your debit or credit card security. Based on preference, some credit card issuers and banks allow users to turn on activity alerts and transaction notifications and receive them via email, text messages, or apps. What is most important here is to ensure that your registered information with the bank or credit card issuer is up to date. Also, reviewing your credit card and account statements regularly, for instance, twice a week, can help you identify strange or fraudulent transactions on your credit and debit card quickly and enable you to report them immediately.
Safe Online Shopping Habits
Avoid using a shared device or network (public Wi-Fi) when shopping online with your debit or credit card to prevent cyber criminals from spying and intercepting your data. If possible, stick to one card for all your online purchases to keep your other credit cards and money safe. In addition, be sure to shop only on reputable, secure websites, and while doing that, never store your payment information or passwords on your browser. Saving these details on your apps or browsers will only compromise your card security.
Strong Passwords and Authentication Measures
The need for strong and unique passwords and PINs for online banking profiles and shopping stores cannot be over-emphasized for anyone who wishes to keep their debit or credit card safe. Such passwords should be long and have numbers, symbols (if allowed), and lower-and-upper-case letters. Passwords containing personal details can be easily guessed and should not be used with online cards or banking profiles. In addition, never write your password anywhere. Hence, using memorable yet complex phrases that only you can easily remember is advised. Furthermore, opt to use two-factor authentication (2FA) where possible to provide additional security for your online transactions. Regularly updating your passwords can also help to prevent card fraud.
Physical Card Security
You must ensure the physical security of your debit or credit card to prevent loss or theft and, in turn, prevent card fraud. Always keep your cards in a safe place away from public pry, and they should be in sight when using them. In addition, always protect your PIN while using it in public, for instance, by covering the keypad when entering your PIN at a POS terminal or an ATM. Also, the need to always use secure ATMs cannot be overflogged. Promptly reporting stolen or lost cards to your bank or card issuer can enhance its security and prevent unauthorized or fraudulent transactions.
Conclusion
Credit and debit cards have a range of unique security features and measures to protect cardholders' accounts and prevent card fraud. Several federal laws regulate and promote card security. That said, you must consider your preference, financial or spending habits, and specific needs to choose the right card when thinking about credit card vs. debit card safety. Considering these factors will help determine the kind of card that is safe for you and will work well for you. While card issuers and banks/financial institutions have various measures in place to ensure card security, cardholders also have a responsibility to keep their cards safe. For example, you can prevent compromising your card information by staying current/informed, avoiding public Wi-Fi for online transactions, and signing up for transaction notification alerts.
