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Hacky New Year

Cybersecurity Awareness –   By Ron Frechette, The Cyber Guy

Ron Frechette, Co-Founder & Managing Partner GoldSky Security, LLC

My wife and I recently had a debate, to use the term lightly, about whether it is safer to use a debit card or credit card when shopping over the holidays… actually when shopping anytime.  She prefers to use the debit card where I tend to lean more towards using the credit card.  So what’s the risk and how are we protected if we are confronted with, God forbid, fraudulent activity?

The cards look the same, are scanned the same, but are very, very, different.

Using a Debit Card

A debit card is linked directly to your bank account. When you make a purchase using a debit card, that exact amount of money is taken out of your bank account within days, just as if you had written a check. Instead of getting a credit card bill at the end of the month, your purchases are recorded on your regular bank statement.

Under federal law, if you report a debit card as stolen to your bank within 48 hours of the theft occurring, the most you’ll be held responsible for is the first $50 of purchases made with your stolen card. If you wait between two and 60 days to report the theft, you’re responsible for up to $500. If more than 60 days pass before you report the theft, you’re responsible for the entire amount.

Catches to Consider:

The balance in your bank account can be liquidated rapidly by cyber criminals if your debit card is stolen. Be especially careful when using your debit card for online transactions.

Banks are allowed to take up to 20 days to restore the stolen amounts to your account, as they investigate the alleged fraud. In the meantime, you could potentially be out thousands of dollars, and you could be short money that you need to pay your mortgage or other bills. And if you’ve already written some checks based on the amount you initially had in your account, those checks will start to bounce — and that means more fees from your bank. Some banks will waive overdraft fees if you report the stolen card early, so check with your bank to see what it will do in this situation.

According to a recent study by MasterCard, debit card users tend to have significantly lower credit scores than credit card users. If you only use your debit card, you’re not building up a credit history or improving your credit score.

Some retailers or service companies may put a hold on your debit account for purchases such as hotel stays, rental cars, and gasoline. It’s also called “blocking” your card.

Debit Cards do not offer Rewards Programs.

Key Benefits:

  • No interest payments.
  • Easier to budget and not get into debt. Instead of getting a credit card bill at the end of the month, your purchases are recorded on your regular bank statement.

Using a Credit Card

When you use a credit card, the credit card company basically extends you a loan for the amount purchased. You typically sign for the purchase, and when they send you a bill, you are obligated to pay your balance. If you do not, the credit card company will charge you interest rates and fees.

Credit card purchases are covered under the Fair Credit Billing Act. The act states that when you purchase something with a credit card, you have no liability for fraudulent purchases, damaged goods, and products that were never delivered.

Catches to Consider:

  • If you don’t have the discipline or means to pay your balance off in full monthly, it is easy to build up more debt than you can handle.
  • Damages your credit score if your payments are regularly late or you don’t repay.

Key Benefits:

  • Minimal Risk if fraudulent activity occurs
  • Builds Credit History
  • Rewards Programs Offered

A few pointers in closing:

Use your debit card only for withdrawing cash from your bank when absolutely necessary.

If you find yourself in a position where all you have is a debit card to use for a transaction, always select the credit option on the POS device and it is recorded as an offline transaction.  “The funds for offline transactions are deducted after the merchant settles the purchase with the credit card processor and typically take 2-3 days to be reflected in your account balance,” MasterCard says.

All of the breaches we have seen over the past two years in the media have created a heightened awareness around credit card fraud. The new EMV chip enabled cards offer extra levels of security and will begin to reduce credit card fraud in the US.

As for my wife, I am optimistically awaiting the wrath of feedback I receive from her after she reads this article! :0)

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