Are Credit Cards Safer Than Debit Cards?

On liability alone, credit cards can come out ahead. Federal law caps what you owe for unauthorized credit card charges at $50, and if a thief has only your card number, you typically owe nothing.

The bigger difference is whose money is missing while a fraud claim gets resolved. Someone could run up thousands of dollars on your credit card, and your checking account wouldn’t change. A fraudulent debit charge comes straight out of your account. Debit cards still have protection, but how much you can lose depends on how fast you report the fraud.

How fraud protection works: Credit cards vs. debit cards

Credit cards fall under the Truth in Lending Act, and the Fair Credit Billing Act gives you the right to dispute the charges. Debit cards fall under the Electronic Fund Transfer Act.

Here’s the most you can lose, according to the Federal Trade Commission:

Your issuer or card network might waive these amounts under a zero-liability policy, so check your card agreement.

Read more >> What's the Difference Between Debit and Credit Cards?

Why debit card fraud hits harder

With a credit card, the charge is debited from the issuer’s money. If you dispute it in writing within 60 days of the statement it first appears on, you don’t have to pay the disputed amount while the issuer investigates. The issuer also can’t report that amount as late to the credit bureaus. It has two billing cycles, and no more than 90 days, to resolve the dispute. Your checking account stays untouched that whole time.

With a debit card, the money is already gone from your account. Your bank has 10 business days to investigate. If it needs more time, it must put the money back provisionally within those 10 business days while it finishes investigating. That can mean up to two weeks without the money when rent or autopay is due.

If that happens, ask the bank when the provisional credit will post. Then call the company whose payment might bounce before the due date to tell them about your situation.

Read more >> How to Handle and Prevent Fraudulent Charges on Your Account

What "provisional credit" means. It’s your money back temporarily, while an investigation continues. The bank returns the disputed amount to your account so you’re not stuck without it, but the case isn’t closed. If the bank finds the charge was legitimate, it takes the credit back.

Other security differences

Reporting fraud

How fast you notice fraud changes your liability on a debit card, but not on a credit card. A debit card’s $50 limit applies only if you report within two business days of learning the card was lost or stolen. After that, the limit rises to $500.

On a credit card, your liability for unauthorized use is capped at $50 no matter when you report it. You still need to dispute it within 60 days of your statement, however.

Virtual card numbers and alerts

Some credit card issuers let you create a virtual card number for online shopping. A virtual number stands in for your real card number, so a breach at a store doesn’t expose the card that’s tied to your checking. Depending on the issuer, a virtual card number may work only once or only with one merchant, so a stolen virtual number is worth little to a thief.

Whatever card you use, turn on transaction alerts in your bank or card app so you can see each charge as it comes through. If a breach exposes more than your card number, such as your Social Security number, check your credit reports for accounts you didn’t open. You can do that for free every week at AnnualCreditReport.com.

What a virtual card number actually protects. If a merchant gets breached, the number they stored is useless elsewhere: You delete it, and your real card keeps working. But it doesn't prevent someone from logging in to your account, where they can generate numbers themselves or just steal your real one. Use a strong password and two-factor authentication to prevent that.

Skimmers and the PIN problem

Skimmers are devices hidden in ATMs, store card readers, and gas pumps, and they capture credit and debit card numbers alike. The difference is the PIN.

Pinhole cameras and keypad overlays can record your PIN, according to the FBI, and a debit card number plus its PIN lets a thief take cash straight from your account. A stolen credit card number doesn’t come with that kind of access.

At the pump, use a credit card or run your debit card as credit. That way, you don’t enter a PIN at all.

Read more >> How to Protect Yourself From Credit Card Fraud

When a debit card can still make sense

A debit card spends money you already have, so there’s no balance to carry and no interest.

If debit is what you use, you can minimize the risk:

• Turn on alerts for every transaction.
• Report fraud within two business days of noticing it to keep your fraud limit at $50.
• Save new or unfamiliar websites for a credit card or a virtual number, if you have one.

Read more >> Understanding Credit and Debit Card Compromises

Bottom line

Credit cards give you stronger fraud protection, mainly because a fraudulent charge never touches your cash while it's being sorted out. That protection only helps if you can get approved for a card, and your credit history decides that and the rate you'll pay.

Kikoff's Credit Account is built for that step. There's no credit check to sign up and no deposit. Your on-time payments are reported to Equifax, Experian, and TransUnion.* Plans start at $5 a month.