What Are the Dangers of Debit Credit Cards?
Debit cards work like credit cards in that they can be swiped for purchases without needing to carry cash or checkbooks. They also function as ATM cards allowing users to withdraw money with a PIN number. Unlike credit cards, debit cards deduct money directly from a linked checking account at the time of purchase. Debit cards lack many of the benefits of using a credit card.
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Fraudulent Use
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Debit cards offer less protection against fraudulent use than credit cards. Often the account holder is responsible for up to $50 dollars in unauthorized purchases and this number can go up or down depending on when the card is reported lost or stolen. Making matters more complicated, thieves only need the card's number and security code to use the card, not the actual card.
Also unlike a credit card. the money is deducted from one's checking account at the time of purchase. This means a fraudulent purchase takes money from one's account. You are out of that money while you work with the bank to get the purchase reversed and the money returned to your account. With credit cards, a disputed purchase that is overturned is simply removed from your statement.
Credit History
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Building a credit history is important if you want to buy a home, take out a loan, or finance a car. Credit history or lack of one can affect one's ability to get loans and the interest rates that come with them. A debit card does not build credit history and its use is not reported to the credit bureaus.
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Disputes
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As with fraudulent use situations, the money is taken right out of your personal account when a debit card transaction is completed. Disputes between a merchant and a consumer can give the merchant the upper hand as she already has your money in her account. As the dispute is progressing the money stays with the merchant and you may only get it back if you win the dispute.
Lack of Benefits and Services
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Credit cards offer benefits beyond postponing payment through grace periods, reversing disputed charges and allowing you to pay for purchases over time. They also offer rewards programs that give you a percentage of your purchase prices back in the form of points or cash back. Some also give you access to exclusive events and discounts.
Another benefit of credit cards is that they offer items such as travel insurance, extended warranties and car rental insurance on any purchases made with the card. Debit cards do not come with these benefits. A travel purchase or car rental fee paid with a debit card may mean additional payment for insurance or no coverage.
And items bought with debit cards come with the standard warranty issued by the store or product maker, meaning a defective product outside of this standard warranty may no longer be covered.
Also some merchants such as hotels and car rental businesses may not accept a debit card for payment. If they do, they may initiate a transaction that holds funds until the hotel stay or rental period is over to cover any additional costs or damages. With a debit card this means money from your personal account is taken and held while staying at the hotel or renting the car.
Tracking Purchases and Fees
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Online banking helps people track their purchases and account balances but with debit cards there is a risk that you may forget about small purchases, thinking that you have more in the account then is actually there. This can trigger overdraft fees and cause bounced checks from other payments.
Also the bank's system may be delayed, make an error, or post transactions at different times giving you a balance amount that may be higher or lower than the actual amount. With a debit card there is no grace period between purchase and payment date.
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