Debit cards vs. credit cards: How much safer are credit cards?

Consumers beware: both credit card and debit card fraud rose last year.

It might seem that you’re at risk no matter what form of payment you use. However, in some ways, debit cards are even more risky than credit cards.

Still, debit cards also can have financial advantages over credit cards, so each may belong in your wallet. The good news is that there are ways you can protect yourself, whichever method of payment you use.

Debit cards vs. credit cards: The key differences

A credit card is a means of instantly borrowing money, while a debit card is a means of accessing money you already have. Credit cards allow you to borrow money from the card issuer to make purchases.

When you use a credit card, the amount spent adds to your credit card balance. At the end of the account’s statement cycle (usually a month), if you don’t pay that amount off within a limited grace period, you’ll pay interest on your balance. Most credit cards charge interest rates and annual fees, and may also charge a cash advance fee if you use your card for a cash advance.

Credit cards are often preferred for online purchases and larger purchases due to the added protections they provide. Additionally, many credit card companies offer rewards programs that allow users to earn points, cash back, or other benefits, making rewards a key advantage for many cardholders. Most credit card issuers provide a variety of cards with different features, protections, and purchase protection options to suit diverse financial needs.

With a debit card, any amount you spend is immediately deducted from the bank account linked to the card, typically a checking account. If you spend more than your available balance, you may incur overdraft fees. Since you’re using your own money rather than borrowing, you don’t pay interest on debit card transactions. Debit cards are issued by financial institutions such as banks or credit unions, with credit unions often offering lower fees. Debit cards also allow you to withdraw cash from ATMs without additional fees at your bank’s machines, whereas credit cards permit cash withdrawals but usually come with high cash advance fees. It’s important to note that checking accounts may have various fees, and they differ from savings accounts, which often have limits on the number and amount of withdrawals allowed.

There are other differences, such as credit cards being more likely to offer rewards than debit cards. When it comes to fraud, though, a key difference is that debit cards tend to leave consumers more exposed than credit cards.

 ➤  SEE MORE:How do cash-back debit cards compare to rewards credit cards?

Are credit cards safer from fraud than debit cards?

Statistics from the Federal Reserve show that credit cards are less of a target for fraud than debit cards. A 2024 Fed survey of risk officers at financial institutions found fraud more common with debit cards in a few ways:

• Debit cards experienced fraud attempts more frequently than any other payment method. Credit cards ranked fifth.
• Fraud attempts involving debit cards were up by 6% last year, compared with a rise of 1% for credit cards.
• Seventy-three percent of risk officers reported frequently experiencing fraud attempts with debit cards, compared with 24% for credit cards.
• Not only were fraud attempts more common with debit cards, but more of those attempts were successful. Fifty-two percent of risk officers saw incidents of successful fraud with debit cards, compared to 12% with credit cards.

Financial fraud in general is on the rise, but debit cards are the most severe area of trouble. Both credit and debit cards are vulnerable to fraudulent transactions, making it important for consumers to stay vigilant.

While security features on cards, such as microchip technology and account monitoring, can help reduce the risk of fraud, they are not foolproof.

Fraud protection: How are credit cards and debit cards different?

The laws governing credit cards provide consumers with more protection against credit card fraud than they do against debit card fraud. Under federal law, including the Fair Credit Billing Act, consumer protections are in place to help credit cardholders dispute unauthorized charges and limit their liability for fraudulent transactions:

• With credit cards, consumers have no liability for unauthorized card use if they report a lost or stolen card before the fraud occurs. If they report it after the fraud occurs, their liability is limited to $50.
• With debit cards, there is also no liability if a lost or stolen card is reported before fraud occurs. After a fraud occurs, though, liability is limited to $50 only if the lost or stolen card is reported within two days of the fraud. This liability jumps to $500 if reported between two and 60 days after, and is unlimited if reported after 60 days. Liability depends on how quickly the account holder reports the loss, and many banks offer a liability policy or zero liability policy that provides additional liability protection for unauthorized charges.

Since debit card purchases draw funds directly from your bank account, there is a possibility that an account can be drained before you even know there’s a problem.

Other risks: Rising debt balances and credit score impact

Credit cards are less likely to have fraud occur, and offer better protection when it does occur. However, it’s worth noting that credit cards have other forms of risk.

Since debit cards draw from your bank account, you can’t spend more money than you have. You also don’t pay interest on the money you spend.

With credit cards, it’s possible to take on more debt than you can afford to pay back. Unless you pay off your balance on time, credit card borrowing will cause you to pay interest. This makes your spending more expensive. Making on-time payments and paying bills promptly helps you avoid debt, late payment fees, and interest charges. Remember, a credit card essentially acts as a short-term loan that must be repaid quickly to avoid additional costs. Timely payments are crucial to prevent late payments and the negative consequences they bring.

Also, credit cards typically report account activity to the three major credit bureaus. This information then becomes a factor in your credit score. Responsible credit card use is important for building credit, as it helps you build credit history and achieve a good credit score. These positive behaviors are reflected in your credit report and can help you establish good credit, which is essential for accessing loans and other financial products.

If you build up large credit card balances and/or miss payments, it can hurt your credit score. On the other hand, debit cards don’t generally report activity to the credit bureaus. Even if they did, since there are no balances owed or payments due, they don’t have the potential to hurt your credit score.

Seven smart tips to protect yourself from credit and debit card fraud

Even with the fraud protections credit cards provide, being a victim of fraud can disrupt your finances. Beyond the potential costs – however minor – fraud can tie up your credit limit and temporarily harm your credit.

So, instead of relying on fraud protections, the best approach is to take steps to avoid being a victim of fraud in the first place. Here are seven tips for doing this:

1. Check transactions regularly. Review every transaction on your card statements promptly. Some cards allow you to sign up for notifications of transactions over a certain dollar amount. Whatever method you use, keep a close eye on activity in your accounts.
2. Report any unknown transactions – even small ones – quickly. If you see a transaction you don’t recognize, report it immediately. This will help shield you against liability and may prevent repeated occurrences. Even if the amount of a transaction is negligible, don’t just let it go. A small transaction might be a fraudster testing the information they have before they try something bigger. It may also be part of an attempt to escape detection by steadily bleeding money from your account over time.
3. Make sure websites are secure before you do business on them. Look for web addresses that are preceded by “https.” The “s” signifies that the site is secured. Type in URLs yourself rather than clicking on links. Watch out for sites that have mistakes or an unprofessional layout and design. Try to do business only with companies that are known to you or have a good reputation.
4. Choose credit in unfamiliar stores – or even cash. Most small businesses are perfectly legitimate. However, why take chances? If you’re in an unfamiliar store that’s not part of a well-known chain, it may not be the best place to share details that would expose your bank account. In such cases, the greater fraud protection of a credit card might be a better option than debit. It might also be an occasion where using cash is the safest course.
5. Beware of loose, bulky or otherwise suspicious-looking card readers. Card skimmers are electric readers that are placed on top of legitimate ones. They allow fraudsters to steal your card details so they can use them for their own profit. If the card reader doesn’t seem firmly integrated into the gas pump or cashier station where you’re making a payment, think twice before using it.
6. Be conscious of your surroundings when entering a PIN code. Typing a debit card PIN number in a public place risks having this sensitive information observed by an unscrupulous onlooker. Be aware of your surroundings before typing in a PIN. Make sure there’s no one lurking around who can see the number you’re typing.
7. Try to use bank ATMs as opposed to those in retail locations. ATMs located within bank buildings are probably less likely to be tampered with or illegitimate. Also, those small stand-alone ATMs are often the most expensive. Using your own bank’s ATM (or one that’s part of a network your bank belongs to) can save you a lot in ATM fees.

 ➤  SEE MORE:Is it better to choose “credit” when paying with a debit card?

Bottom line: Credit and debit cards each have a role to play

Credit and debit cards expose consumers to different risks. It’s not a question of one being better than the other. It’s more a matter of choosing the right time or place to use each one.

In familiar surroundings or on a website you know well, using a debit card can have advantages. It creates less potential to overspend, and no risk of having to pay interest.

However, in situations you’re less sure of, it might be a good idea to fall back on the better fraud protection of a credit card.

Whichever card type you choose, take your own steps to guard against becoming the next financial fraud statistic.