5 Reasons to Avoid Debit Cards for Online Shopping
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A significant number of individuals utilize their debit cards for everyday purchases. Opting for a debit card instead of a credit card can aid in steering clear of debt, as the funds are deducted directly from the bank account, keeping spending in check compared to credit options.
However, there are advantages to using a credit card when making transactions online.
Relying on a debit card for online shopping can result in greater losses if you fall prey to fraud. Moreover, you miss out on essential consumer rights and rewards each time you use a debit card, whether in stores or online.
Here are several reasons to consider replacing your debit card with a credit card.
1. Increased risk of fraud
It’s a common misconception that you won’t bear any liability for unauthorized purchases made with your debit card or checking account details. Unfortunately, this isn’t true. Unlike credit cards, which often provide zero fraud liability due to protections under the Fair Credit Billing Act (FCBA), debit cards do not have the same safeguards.
If someone else gains access to your debit card number, they could drain all your account balances. If you don’t act quickly to report the fraud, retrieving your money may not be possible.
The Federal Trade Commission (FTC) states that your liability level hinges on when you notice and report the fraud. For instance, if you report it within two business days, you’re accountable for only $50 in losses. Reporting within 60 days raises your liability to up to $500. However, if you take longer than 60 days, the FTC warns that you risk losing “all the funds taken from your ATM/debit card account and potentially more, such as cash in connected accounts.”
2. Lost opportunities for rewards
Besides increasing your vulnerability to fraud, using a debit card means missing out on various rewards when shopping online. Using a rewards or travel credit card could earn you cash back or travel points on your purchases. Over time, these rewards accumulate, enhancing your ability to travel or indulge in gifts and merchandise.
While rewards or travel credit cards typically offer 1% to 3% cash back, you may also benefit from shopping through specific cash back or travel reward portals, allowing you to maximize your rewards. Although some rewards could be had with a debit card, options are limited compared to credit card engagements. (See also: How to Use Airline Shopping Portals to Cash In On Rewards)
3. No eligibility for sign-up bonuses
Using a debit card also results in forgoing substantial sign-up bonuses. Numerous rewards credit cards present the opportunity for bonuses that can be worth $500 or more, contingent upon meeting specific spending thresholds within a few months.
It’s a common misconception that annual fees are a prerequisite to earning bonuses or ongoing rewards with credit cards. In reality, there are many reward credit cards that offer impressive bonuses and rewards without the burden of a yearly fee. (See also: Don’t Make These 6 Credit Card Sign-up Bonus Mistakes)
4. Lack of consumer protections
Using credit over debit is advantageous also because it typically qualifies you for significant consumer protections and complimentary insurance. This may include travel-related protections such as trip cancellation/interruption insurance, rental car insurance, travel accident insurance, and baggage delay insurance, among others.
Other protective measures available for your online transactions include extended warranties, purchase protection, and guaranteed returns. Generally, debit purchases do not provide access to these benefits. (See also: How Credit Cards Protect Your Purchases from Damage or Theft)
5. Failure to build credit history
Another reason to reconsider your debit card usage is the absence of credit history development through your purchases and daily expenses. By utilizing credit, you not only make regular transactions but also establish a payment history that is reported to the three major credit bureaus — Experian, Equifax, and TransUnion.
Having your credit utilization and payments reported plays a crucial role in determining your creditworthiness, laying the groundwork for increasing your credit score over time. While debit card usage won’t negatively impact your credit score, it won’t positively influence it either.
Considering a credit card? Important advice
Although online debit use poses higher risks and rewards deficits, it’s crucial to assess whether credit card usage is for you. Though credit cards offer more robust fraud protection, rewards, and consumer protections, they can also tempt users to overspend, potentially leading to significant debt.
Before applying for a credit card and using it for your purchases, ensure that you can adhere to a budget and only spend what you can comfortably afford. If you accrue a substantial debt that it difficult to pay off—especially with the often high-interest rates associated with credit cards—the benefits of rewards and protections may not prove to be advantageous.
