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Credit cards are safer than debit cards because under federal law, they provide greater liability protection if you're a victim of fraud.
Here's how: If your credit card is lost or stolen and someone uses it to make unauthorized charges, you'll only be responsible for up to $50. If unauthorized charges are made with a debit card, you could potentially be liable for the full amount, depending on when you report the card's loss or theft.
Many credit cards also offer zero liability protection. This feature is also found on some debit cards, but you may still have to report within a certain number of days, and you'll have to confirm the terms with the issuing bank. Below is a breakdown of your liability for unauthorized charges made to credit cards and debit cards, according to federal law.
| Credit Card vs. Debit Card Fraud Liability | |
|---|---|
| Credit Card Liability | Debit Card Liability |
If you report a card's loss or theft before fraud occurs: $0 If you report a card's loss or theft after fraud occurs: $50 max, no matter how long after the card loss or theft you report; many credit card issuers limit liability to $0 | If you report a card's loss or theft before If you report within 2 days of fraud: $50 max If you report 2 to 60 days after fraud: $500 max If you report more than 60 days after |
Here's what to know about safety and fraud protection when using a credit card versus a debit card.
How Credit Card Fraud Works
Credit card fraud is when someone uses your credit card account—either the card itself or your card number and personal data—to make charges or to open a new account you didn't authorize.
If unauthorized charges show up in your account, your liability depends on when you report to the credit card company that your card was lost or stolen. Under the Fair Credit Billing Act, reporting the loss or theft before charges are made means you have zero liability, no matter how much a thief eventually charges.
If you report the loss or theft after charges appear, your liability is capped at $50. But many credit card issuers offer zero liability protection as an extra fraud protection measure. That means you're not liable for any charges, no matter when you report a card or card number's loss or theft.
How Debit Card Fraud Works
Debit card fraud comes with harsher consequences for your finances than credit card fraud: Your own cash is at stake, rather than charges to a credit card. The Electronic Fund Transfer Act is the federal law that governs a consumer's liability as a result of debit card fraud, and it's less generous than the Fair Credit Billing Act.
If you report loss or theft of a debit card before unauthorized charges are made, you have zero liability, just like a credit card user would. But that's where the similarities end. If you report the loss or theft after unauthorized charges are made, your liability depends on how soon you alert your bank or credit union:
- Within two days of fraud: $50 maximum liability
- Two to 60 days after fraud: $500 maximum liability
- More than 60 days after fraud: Liability for up to all unauthorized charges
Which Is Safer, a Credit Card or Debit Card?
On the basis of liability protection alone, credit cards are safer than debit cards. You're not at risk of losing money immediately from your bank account that you may be responsible for, depending on when you tell the bank that your debit card was lost or stolen.
But there are circumstances when using a debit card can be just as safe, and potentially more convenient or budget-friendly. Here's a breakdown.
When to Use a Credit Card
- Purchase protection: Many credit cards come with an extra security feature called purchase protection, which may help get your money back if an item you bought with the credit card is stolen, damaged or not what you expected. If you're making a big purchase—or it's from an unfamiliar merchant—using a credit card with purchase protection can give you peace of mind.
- Earning rewards: Credit card rewards come in the form of cash back, points or miles, and can get you a range of perks on everyday spending or travel. While rewards credit cards aren't necessarily safer than debit cards, they may come with additional benefits, like travel insurance, that can support you in unexpected circumstances. Since APRs are often higher on rewards cards, plan to pay off the full balance every month.
- Making hotel deposits: It's more convenient to use a credit card when a merchant, such as a hotel, says it will place a "hold" on the card, which functions as a deposit until you pay the full charge. When you use a debit card, the merchant will initially take the full amount of the deposit from your bank account, leaving you with less cash until it's returned several days later. A credit card is better suited to these transactions.
When to Use a Debit Card
- Withdrawing cash: It's much more cost-effective to use a debit card at an ATM, even if a cash advance is an option from your credit card issuer. If you use a credit card at an ATM, you'll pay a cash advance fee plus a cash advance APR, which adds to the cost of the cash advance each month that you haven't repaid it in full.
- Avoiding convenience fees: Some merchants charge customers a convenience fee for using a credit card, since they must pay the credit card networks themselves to accept credit card payments. Using a debit card may help you circumvent these fees.
- Limiting debt: If you're concerned about building up debt when using your credit card, sticking to a debit card is a safe way to ensure you never spend more than you earn. Consider choosing a bank that offers a zero liability policy on debit card transactions so that you receive close to the same fraud protection as a credit card.
How to Protect Yourself from Credit and Debit Card Fraud
Take these steps to limit your exposure to credit and debit card fraud:
- Secure your physical cards. Keep your cards safe from theft by keeping them with you rather than in your car or gym locker. Using a digital wallet, such as Apple Pay or Google Pay, on your phone can also limit potential loss or theft.
- Use contactless payments whenever possible. Contactless payments are more secure than making a payment with a card's chip or magnetic stripe. If your current debit card or credit card is not capable of contactless payments, your financial institution may be able to provide you with an updated card if requested.
- Watch your accounts. Regularly monitor your bank and credit card accounts to make sure you recognize every purchase, and sign up for fraud alerts from your bank and credit card issuer.
- Make use of card locks. Your credit and debit card may come with additional security features that can help prevent fraud. If you've misplaced your card but expect to find it again, you can lock your credit card or debit card in the meantime. This prevents unauthorized transactions in case your card is in a fraudster's hands, but will allow scheduled bill payments to go through.
The Bottom Line
Credit cards are far more likely than debit cards to offer true zero liability protection in the case of fraud, which generally makes them a safer choice. But no matter which payment method you use, there are ways to dodge potential fraud when shopping online, while traveling or in your day-to-day life. Regularly checking your credit report, which is available for free from Experian, is a crucial component in avoiding the stress and inconvenience of fraud.