Today’s guest post is by Odysseas Papadimitriou, CEO of CardHub.com, a leading credit card comparison website.
Imagine that this month you send in your rent check or mortgage payment and the check bounces. You’re shocked because you know that the money is in your account and you haven’t made any major purchases in the past few weeks. When you look at your account, you see that it’s been completely wiped out and that the charges made have not been made by you.
Needless to say, this scenario is a consumer’s worst nightmare. There are few things that give a person more anxiety than knowing that someone else has access to their money, and therefore their livelihood. So it’s no wonder that consumers are particularly concerned about making financial choices that protect them from this kind of fraud.
Consumers expose themselves to fraud when using electronic payment methods such as credit or debit cards. Using cash for your purchases clearly puts you at lower risk, but for many of our day-to-day expenses cash is simply not a practical option. This explains why electronic payments accounted for 62 percent of payment volume in 2009, compared to 20 percent in cash*.
With debit and credit card use increasing every year, many consumers ask: which card is safer when it comes to fraud protection?
Major credit and debit card networks like VISA and MasterCard adhere to a zero percent liability policy for fraud victims. Therefore, you are protected from 100 percent of fraudulent charges made to either your credit or debit card. This policy means that technically both kinds of cards offer equal protection – but as a practical matter, this is not the case.
You put yourself at much greater risk of being exposed to a scenario like the one described above when you use a debit card for day-to-day purchases. The reason for this is that your debit card is tied to your actual money. If someone gets a hold of your debit card information, they have access to the money you use to pay for important things like your rent, student loans, or mortgage payments.
Credit cards, on the other hand, are tied to borrowed money. You’re not going to bounce your rent check because someone has gotten a hold of your credit card information. In addition, you’re generally not even responsible for paying back the balance on your credit card for 25-55 days after a charge is made. This amount of time is more than enough to detect, report, and resolve fraudulent charges before you become responsible for the debt.
Although these practical matters make credit cards more convenient, credit cards remain a poor choice for consumers who are unable to control their spending. However, if you know you can handle your credit account responsibly, there’s no reason to choose a debit card – unless you’re looking for a challenge while cleaning up your fraud mess.
* Source: CSCU, The Nilson Report, VISA