Identity theft is something that every consumer worries about, and with good reason. As many as nine million Americans fall victim to identity theft each year, according to the Federal Trade Commission.
While identity theft takes many forms, one of the most common is when a thief uses your credit or debit card information to make unauthorized purchases. As a result, fraud protection is one of the biggest concerns people have when exploring options for a method of payment.
What good is a means of spending money – the thinking seems to go – if it doesn’t protect the very money you intend to spend? The crux of the matter therefore becomes: Which provides better fraud protection, a credit card or a debit card?
Liability Guarantee
Actually, both credit cards and debit cards provide $0 liability guarantees, which means you will not be held liable for any unauthorized purchases made on your account. This is true for any major debit or credit card, so you don’t need to check the fine print. But if you do, you’ll find something similar to the following, which was found in a Bank of America credit card application:
“The $0 Liability Guarantee covers fraudulent purchases and payments made by others using your Bank of America credit and debit cards. To be covered, report purchases made by others promptly, and don’t share personal or account information with anyone. Access to funds next business day in most cases, pending resolution of claim. Consult customer and account agreements for full details.”
Still, there has to be more to the matter, right?
Practical Effect of Identity Theft
There is indeed more to the matter, and it has to do with the practical disparity between credit and debit card fraud. The main difference stems from the fact that funds are withdrawn from your checking account immediately upon making a purchase with a debit card, whereas with a credit card you have at least 21 days from the time you receive your monthly bill to actually make a payment.
If your debit card account information is stolen and you don’t notice the unauthorized charges before mailing your monthly checks, for instance, they very well might bounce. You’ll get the stolen money back per the $0 liability guarantee, but your bank won’t be able to do anything about the bounced checks, which means you might lose credibility with merchants and monthly service providers and even incur credit score damage.
On the other hand, if your credit card account is compromised and unauthorized charges are made, you’ll be more likely to notice before there is any impact to the rest of your financial life. After all, you’ll have a chance to review your statement and make any necessary inquiries before outlaying money. A credit card simply gives you the benefit of time, which is extremely helpful in dealing with identity theft and any resulting fraud.
Therefore, while the two technically provide equal protection, credit cards make fraud easier to manage than debit cards. Protecting yourself against fraud isn’t as simple as using a credit card, however.
Minimizing Fraud’s Potential
As identity theft can manifest itself in a number of ways, your methods of identity theft protection must as well. Start by reviewing your bank accounts and major credit reports thoroughly and consistently. You have the right to a free copy of each of your major credit reports every 12 months, and if you don’t exercise it, you might not notice fraud before significant damage is done. Continue by making sure to:
- Keep your Social Security Number (SSN) as private as possible
- Shred important documents
- Stop your mail while on extended vacations
- Use secure passwords (e.g. not your birthday or pet’s name) for financial information and change them once a quarter
- Verify a source before disseminating personal information
- Lock up your wallet, purse or any important information kept at home or at work
While completely insulating yourself from identity theft is likely impossible, anyone can take the necessary steps to limit its likelihood. So stay on top of what's going on with your personal finances and protect any personally identifying information and you'll be much less of a target.
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