*This was originally posted in 2017. Numbers have been updated to reflect 2018 stats.
With Christmas and Hanukkah just around the corner, we are probably all reaching into our wallet a little more often. The National Retail Federation “expects holiday retail sales in November and December — excluding automobiles, gasoline and restaurants — to increase between 4.3 and 4.8 percent over 2017 for a total of $717.45 billion to $720.89 billion.”
Many of our clients and friends have expressed concerns about keeping their identity and credit safe against fraud while shopping. In the age of endless data breaches and retail hacks, we consider it more important than ever that individuals are well informed.
This article will focus on using credit cards vs. debit cards on various retail transactions. The main take-away: when you have a choice, always use your credit card.
Never use a debit card in the following scenarios:
- at a gas station
- for an online payment
- at a supermarket
- at the car rental counter
- when booking advanced travel
- at hotels
- when buying furniture and large appliances
- for automatic/recurring bill payments
- at ATMs
- at restaurants
- anywhere you are a new customer
- for subscriptions
- when paying for big purchases
- when a security deposit is required
- For something that you are required to pay for now, but won’t be delivered till later. If you use a credit card instead, you have the advantage of being able to dispute a charge if the item doesn’t get delivered.
Whenever possible, use your credit card
Rewards. Credit card users can reap cash, discounts, travel points and many other perks unavailable to debit card holders by using rewards cards. Smart consumers who can pay off their cards in full and on time every month can profit substantially by running their monthly purchases and bills through them.
Credit scores. Credit card use is also reflected on the customer’s credit report, which allows responsible spenders to raise their scores with a history of timely payments.
Warranties. Credit cards can also provide additional warranties or insurance for items purchased that may exceed those of the retailer. If an item bought with a credit card becomes defective after the manufacturer’s warranty has expired, for example, it’s worth checking with the card company to see if it will provide coverage.
Liability for lost or stolen cards. Credit cards still offer much greater protection in most cases. As long as the customer reports the loss or theft in a timely manner, his/her maximum liability for purchases made after the card disappeared is $50. The Electronic Funds Transfer Act gives debit card customers the same protection from loss or theft – but only if the customer reports it within 48 hours of discovery. After 48 hours, the customer’s liability rises to $500; after 60 days there is no limit.
Disputing transactions. The Fair Credit Billing Act allows credit card users to dispute unauthorized purchases or purchases of goods that are damaged or lost during shipping. But if the item was bought with a debit card, it cannot be reversed unless the merchant is willing to do so. What’s more, debit card victims don’t get their refund until due process has been completed. Credit card holders, on the other hand, are not assessed the disputed charges; the amount is usually deducted immediately, and restored only if the dispute is withdrawn or settled in the merchant’s favor. While some credit and debit card providers offer zero-liability protection to their customers, the law is much more forgiving for credit card holders.
Car rentals. If you need to rent a car, most credit cards provide some sort of waiver for collisions. Even if you want to use a debit card, many car rental agencies require customers to provide credit card information as a backup. The only way out for a customer may be allowing the rental agency to put a hold of perhaps a few hundred dollars on his or her bank-account debit card as a form of surety deposit.
Credit Card Mistakes:
- Having too many. annual fees can add up, too many cards can negatively impact your credit score and your ability to borrow money,
- Misunderstanding introductory rates. big-ticket purchases often come with a deferred interest deal when the item is purchased with a store credit card. However, interest accumulates from the day of the purchase. If you don’t pay off the debt during the introductory period, interest charges are charged retroactively, and usually at a high rate.
- Not reading the fine print. this is where you’ll find that the low interest rate will expire or if there are balance transfer fees, and any other offer limitations.
- Not shopping for the right card. make sure the rewards and rebates match your lifestyle.
- Not shopping for the best rate. shop for the best possible APR or interest rate.
- Not making minimum payments or paying the bill late. will have to pay more interest, late payment charges, shows up on your credit report, damage your FICO score, etc.
Debit Cards are subject to numerous types of fraud:
- In-person fraud: This type of fraud is committed when a thief steals your card and uses it to make purchases at various merchants.
- Online fraud: Online fraud occurs when your card information is stolen while making a transaction online. In this case, thieves could use card information to make online purchases or assume your identity.
- ATM fraud: ATM fraud occurs when a thief is able to acquire your card and/or pin number and withdraw money from the machine.
- Identity fraud: Identity fraud occurs when a thief steals your card to assume your identity. This type of identity theft is especially successful if the thief is able to acquire your wallet with other valuable information like a Social Security card or birth certificate.
- Credit and debit card skimming: is a popular form of fraud in which a thief installs a machine or camera at an ATM in order to pick up card information and PIN numbers when customers use their cards.