Financial Literacy: Debit and Credit- Uses, Differences

Key differences

• • • There are three types of Debit cards
      • The standard debit card draws funds directly from your bank account. If there isn’t enough money, the purchase will not go through
      • The EBT (electronic benefit transfer cards) are issued by state and federal agencies and allow users to use their benefits to make purchases
      • Prepaid debit cards give you access to a bank account up to a preloaded amount on a card

       

    • Credit cards allow you to borrow money from the card issuer to a certain limit (line of credit) to purchase items or to withdraw cash (cash advances).
      •  If you do not pay back the entire amount charged on time (usually two weeks) after you receive the bill, you are charged interest on your purchased items and any balance you have from previous periods.
      •  If you take a cash advance against your card, you begin to accrue (get charged) interest from the day you took out the money to the day you repay it in full.

       

    • Credit cards offer better consumer protections against fraud
      •  If your credit card is lost or stolen or someone accessed your credit card number, date, and security number on the back of the card, you must report it.
        • If you do it in a timely manner, the maximum you are liable for you are liable for fraudulent items is $50.
        •  You can dispute (make a claim) the items. If the card issuer checks your story and finds that the purchase(s) were actually fraud, you will receive a credit on your account for the entire amount.
        • This can take as long as 90 days. During that time, you do not have to pay for the charged item(s), and no interest is charged during the time it is being researched
      • If more than one item was purchased fraudulently, or the cost was high, the credit card issuer will normally close the account and open a new one for you.
        • This usually results in a 7-10 day delay in being able to make new purchases on the new card.
        •  If you’ve set up automatic payments on your credit card, you will have to call the retailer/vendor to give them your new number. If you forget, the charge will be denied on your new card.
    • If your debit card is lost or stolen, the Electronic Fund Transfer Act, gives customers similar protection, but only if you report it within 48 hours.
      • After than your liability rises to $500
      • After 60 days, there is no limit – you are responsible for all charges
      • You normally do not receive your money back until the investigation is completed.

       

    • The Fair Credit Billing Act allows credit card users to dispute purchases of goods that are damaged or lost during shipping.
    • There is no such protection for debit cards – you will have to contact the company from which you made the purchase. It’s up to them whether to let you return it for a refund, or in the case of something being lost in shipping, whether to issue a credit to your account.
    • Extras
      • Many credit cards offer points, miles, or cash back on purchases to entice you to use their cards. The type of rewards vary depending on the company that issued the card.
      • Not offered on most debit cards
      • Some credit cards offer warranties (insurance) on your purchases. If something breaks or is defective, the card issuer will either replace the item or give you a credit for amount of the warranty.
        • Don’t assume your credit card company offers this coverage. If you are buying an expensive item, check with the credit card company to see if the offer warranties as part of their benefits (free).
      • Using credit cards helps you build your credit score if you pay the amount due on time.
        •  Paying late, or not paying the entire amount that is due, will reduce your credit score.
        • Some companies offer free credit monitoring so that you can see how your credit score is changing.
      • Using debit cards does not affect your credit score in any way.