Thursday, June 28, 2012

A Credit Card or a Debit Card for Fraud Protection, That is the Question

This article comes from Odysseas Papadimitriou, founder and CEO of Card Hub, a leading marketplace for comparing and learning about credit cards, prepaid debit cards, and gift cards.

Mirrors on ATMs are an ever-present reminder that there very well could be someone out there trying to steal your hard-earned money. Even though fraud only impacts about 0.5% of all purchases made with credit cards and debit cards, no one wants to be a victim, so fears pervade, fueled on by the sensationalistic horror stories commonly run on the local news. But instead of always looking over your shoulder, why not get a spending vehicle that will naturally shield you from fraud liability? Such is the type of rationale that leads to me hearing the same question from consumers time and again: Will a credit card or a debit card better protect me from fraud?

To run the risk of being anticlimactic, let’s clear things up right off the bat. As long as you report suspected fraud promptly, you won’t be held liable for any unauthorized charges made with either a credit card or a debit card (non-PIN transactions). Not only does federal law limit liability to $50, but most, if not all, card networks and issuers have themselves voluntarily adopted $0 liability guarantees. Fraud therefore isn’t that big of a concern and your money should be safe whether you’re using a credit card or debit card.

Still, fraud can be a major pain to deal with, so it’s fair to wonder whether a credit card or a debit card makes for a simpler remedy to any potential problems.

The answer to this question pertains to the fundamental difference between these two plastic spending vehicles. While funds are removed from your bank account pretty much immediately upon a debit card transaction being made, the issuing bank initially pays for your credit card purchases. That means you have much more time to notice and report credit card fraud before being out any cash than you would debit card fraud. You could therefore conceivably end up bouncing a few checks as a result of being unaware that fraud had led to an insufficient account balance – which can complicate things quickly. Plus, you’d have to endure the psychological trauma of seeing your bank account empty.

The best answer to the question of whether a credit card or a debit card serves as a better safeguard against the ill-effects of fraud therefore has to be the former.

Simply using one piece of plastic as opposed to another is not the only way to ward off financial thieves, however. There are a number of simple everyday measures you can take as well, each of which will drastically reduce the chances of your cash or sensitive financial information falling into the wrong hands.

It all starts with exercising your right to free copies of your major credit reports every 12 months. Credit report inaccuracies (e.g. the presence of accounts you did not open, being listed as delinquent when you have always paid on time) can be obvious indications of identity theft. If left uncorrected, they will not only bring creditors to your doorstep asking for “their money,” but also lead to significant credit score damage. Some other fraud prevention tactics include:

  • Using passwords to your advantage: Setting passwords for your bank accounts and other important financial information should entail more than simply plugging in the name of your pet and saving it in your computer. Rather, you should use a combination of letters, numbers and cases that is both memorable and secure. You should also change your passwords on a semi-regular basis.
  • Not talking to strangers: When it comes to your money, introversion can be a good thing. You shouldn't even open e-mails from people you don’t know, especially ones with attachments. You also shouldn't give any financial information to people who contact you – only give your info to reputable companies that you have contacted.
  • Going back to the basics: While fraud has a decidedly technological bent to it in this day and age, it pays to remember the basics, such as shredding credit card statements and other financial documents before throwing them out and getting a lock for your mailbox.

Ultimately, you should not let fear of fraud control your life. As long as you take commonsense measures to safeguard your money and are vigilant in reporting suspected instances of impropriety, both you and your money will be just fine.

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