LEGAL MATTERS: Use Your Credit Card – Not Your Debit Card

Wednesday, November 27, 2013

John T. Longo, GoLocalWorcester Legal Contributor

Forget what your parents told you and reach for a credit card when you are shopping this holiday season. Using a credit card, instead of cash or a debit card, is the best way to protect yourself from being ripped off. And don’t confuse your debit card (that has a Visa or MasterCard logo on it) with a real credit card.

Understanding the Difference Between Debit and Credit Cards

Your debit card is tied directly to your bank account; when you use it, your bank immediately takes the money out of your account. In the old days (does anyone else remember using their Ready Freddy card from Old Stone Bank?), you could only use your debit card at ATM machines. Now debit cards come with a Visa or MasterCard logo on them so you can use them just about anywhere. But they are still tied directly to your bank account; when you buy something, your bank immediately takes the money out of your account and sends it to the merchant you are dealing with.

A credit card is not tied to your bank account. When you buy something using your credit card, the bank that issued the card sends its money to the merchant and then sends you a bill at the end of the month for everything you bought with the bank’s money. If you do not pay the bill in full, the bank is happy because it gets to charge you interest.

If it is not a credit card, why does the cashier ask me ‘debit or credit?’

Despite what you may think when a cashier asks you “debit or credit,” you cannot turn your debit card into a credit card. What the cashier is really asking is how the transaction will be processed. If you say ‘credit’, it is processed one way and you will probably have to sign your name. If you say ‘debit’ it is processed another way and you will probably have to punch in your PIN. Most stores prefer to use the debit process because it lowers the transaction fees they get charged.

Which is better?

Federal law offers more protections to consumers who use credit cards than to those who use debit cards. The biggest difference is you do not have to pay credit card charges for goods or services you do not receive. So if you use your credit card to buy an Xbox One from an on-line merchant that never delivers it, you will not have to pay that part of your credit card bill. Or, if you manage to find an Xbox One at your local Best Buy but it is broken when your kids take it out of the box, you can refuse to pay the credit card charge. In either case if you paid with your debit card – or worse, cash – the chase will be on to get your money back.

There are other differences as well. For example, if your credit card account number is stolen, you are usually liable for only the first $50 of fraudulent activity; the limit is typically higher for debit cards. Also, if you have a dispute with a merchant you paid with your credit card, your credit card company may have to help you resolve it and you might not have to pay the charge; if you paid with your debit card, your bank does not have to help and it won’t ever give you your money back. Using your credit card also builds your credit history and can earn you reward points; using cash or your debit card does neither.

This chart may help you understand why it is usually better to use your credit card.

For More Information

Learn more about how to dispute credit card charges, and the federal Fair Credit Billing Act that protects you when using credit cards, here.

If you ignored my advice and used your debt card, you can learn more about the federal Electronics Funds Transfer Act, and the limited protections it offers you, here.

Related Slideshow: Central MA Unemployment Rates #72 - #1

Here are the unemployment statistics for each town in Central Mass, ranked from least to most-

LEGAL MATTERS: Use Your Credit Card – Not Your Debit Card

Related Slideshow: Central MA Unemployment Rates #72 - #1

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