We all know someone who is a little paranoid over the use of credit cards. Their concerns are not entirely unwarranted, as some credit card horror stories are certainly true.
However, many of these credit card horror stories might be a little over exaggerated. In fact, credit cards today are very safe and if used correctly, it can help you manage your finances better.
You may also ask what’s the difference between using a debit card compared to a credit card?
Credit limit is not your own money
This important point is what provides that extra layer of protection for you.
A debit card is linked with your savings or current account. So every transaction that you make using this card is deducted from your own pocket. This means that any fraudulent transaction made using your debit card leads to funds being deducted directly from your own bank account. If a malicious hacker or thief starts using your card, not only will your account be drained of its cash, but you will likely have to wait weeks before your bank can finish their investigation and debit the cash back into your account. For example, according to OCBC Bank, dispute resolution investigations can take up to 14 business days or more depending on the situation.
On the other hand, when it comes to a credit card, the issuer grants you a credit limit based on your creditworthiness and income. This credit limit allows you to purchase goods and services or pay for your expenses. In other words, you are technically not using your own money to pay while using a credit card. You will be using the issuer’s money, with you only being charged at the end of your billing cycle. So, even if your card is used fraudulently, you can dispute the purchases to make sure your bank account does not get charged.
Debit vs Credit Card
What difference does this make? Quite a big one when it comes to protecting your own money. Here are three major areas where using a credit card trumps a debit card.
1. Fraud and theft protection
As mentioned previously, there may come a time where your debit card has been stolen or hacked. When this happens, you often have little choice other than to report the incident to the bank and have them block your card. However, they may or may not credit the amount that was used without your knowledge or consent.
In contrast, a credit card provides an extra layer of protection. As previously mentioned, money that is paid using a credit card belongs to the bank. This means that when you report a fraudulent transaction made using your credit card within the stipulated time, the charges can be reversed so you don’t actually have to use your own money to pay for those unauthorised purchases.
When you report a debit card for theft or fraud, it is your cash that has been used, and you will likely not get that money back until the bank has concluded their investigations.
2. Disputing charges
In recent years, online shopping has risen to the top, becoming an incredibly popular option for consumers who are looking to make a purchase. When using a debit card online, there is a chance that you can get falsely charged for goods or services.
The only way to raise a dispute is to reach out to the seller and liaise with them. This is a time consuming process that causes unneeded levels of stress for both parties.
If you made the purchase using a credit card, you can still dispute the charges with the card issuer and file a report. While waiting for the dispute to be settled which may take a long time, at least it is not your money that tied up in the transaction.
3. Purchase protection
Some credit cards come with purchase protection plans which can help reimburse you under certain conditions such as theft or accidental damage.
The level of protection you receive depends entirely on your card with some being quite comprehensive, while others may offer only basic protection.
For example, Maybank’s Visa eCommerce Protection Plan covers possible losses up to USD1,000 per year, specifically for online purchases.
New security features for credit and debit cards
While there are plus points to using credit cards especially for online purchases and travelling abroad, debit cards are also useful for budgeting and tracking your daily expenses when used right. These days, both types of cards are likely to have added security features.
1. Dynamic CVV
Dynamic CVVs are a relatively new security feature that has been implemented in cards, both credit and debit. It sacrifices some convenience for potentially much greater security when using credit cards.
A CVV is basically the 3-digits located behind your credit card that is usually used for verification. Dynamic CVV cards do not have this code.
Instead, a randomly generated CVV is either delivered through a banking app, or more rarely, a display on the card itself. This makes it much harder for stolen cards to be utilised.
2. Virtual cards
Virtual debit and credit cards essentially add an extra layer of security for making a credit card payment. It is a randomly generated 16-digit number associated with your actual credit card account.
Your bank will provide you with this random number, which can then be presented as a means to make purchases without presenting your physical card.
Once used, the virtual card number will be retired and never used again. A new number will be generated if you wish to make another purchase. This is highly effective against fraudsters as it can help prevent your card number from being stolen.
Just remember to plan out your purchases accordingly and avoid bad spending habits to avoid any unexpected financial mishaps!
