Editorial Policy

4 common debit card myths debunked

Allie Johnson

October 19, 2015

Debit cards now are used to pay for everything from a sweater to a pack of gum. Their use has grown from 8.3 billion payments in 2000 to 47 billion payments in 2012, according to the 2013 Federal Reserve Payments study.

Despite the prevalence of debit cards for payments, myths remain about their use.

Sixty percent of college undergrads mistakenly believe that using debit cards helps you build credit, according to a 2015 U.S. Bank personal finance study.

“That is a myth,” says Anne Uwabor, senior manager of communications for PULSE Network, an ATM/debit network and a subsidiary of Discover Financial Services.

“It's borrowing money that helps you build credit, especially when you pay it back on time,” Uwabor says.

Could you use a refresher course on how debit cards work? Here are four common debit card myths, along with the facts:

Myth No. 1: Debit cards help you build credit. This misconception might stem from the fact that you have to choose “debit or credit” when you use your card at the store, says Kelley Long, a certified financial planner with Financial Finesse, a company that offers workplace financial wellness programs. That choice could make some shoppers think they're building credit with every use, she says.

However, the clerk is really asking whether you want to confirm your identity by entering your PIN – a number only you should have – or by signing for the purchase, Uwabor says.
If you choose debit, the money will come out of your account immediately. If you pick credit, the transaction will show up as “pending” for a few days before posting to your account.

There are a few other considerations, too. You can get cash back only if you choose debit and enter your PIN, while choosing credit and signing gives you zero liability for unauthorized transactions from the payment processing network, such as MasterCard or Visa. So if you get double charged or charged too much, you're protected. Most banks offer similar protections for debit card transactions, but they're not required to do so, Uwabor says.

And while a debit card doesn't help you build credit directly, a debit card can be a great tool to use as part of a good credit-building strategy, allowing you to avoid racking up card debt, Long says. “We call it pay as you go,” Uwabor says.

Myth No. 2: It's unsafe to use a debit card online. As with many myths, there's some truth to this one. Many personal finance experts say that it's better to use a credit card than a debit card for online shopping.

Debit cards have just become so common that people use them without thinking about it. It's easy to take them for granted.”
–Anne Uwabor,
senior manager of communications for PULSE Network

Why? Generally, debit cards offer fewer consumer protections than credit cards, which are not linked to your bank account. Debit cards, being linked to your bank account, can give fraudsters easier access to your cash.But, if you prefer debit or don't have a credit card, you can take steps to make a debit transaction safer.  When shopping online with a debit card (and this applies when you're using a credit card, too) you should shop only on sites that have a URL beginning with “https” rather than “http,” Uwabor says.

“The ‘s' stands for secure,” she says. You also want to look for a lock icon in the browser bar. The lock icon has to be in the browser bar rather than on the page, Uwabor says. “Some suspect sites will put a lock on the page, but that's meaningless,” she says.

Also, though it might make it easier next time you shop, don't save your debit card information on sites where you shop.

Myth No. 3: If your debit card gets used fraudulently, you can kiss that money goodbye. What if a fraudster gets hold of your debit card number and goes on a shopping spree? Some consumers mistakenly believe you're out of luck, Uwabor says.

Whenever someone uses your debit card, whether it's you or a fraudster, the money comes directly out of your bank account, Long says. But, while credit cards do offer more consumer protections for fraudulent purchases than debit cards do, debit card users do have recourse.

With credit cards, the federal Fair Credit Billing Act guarantees that a cardholder is only on the hook for the first $50 in fraudulent charges. However, Visa, MasterCard, American Express and Discover offer zero liability, meaning you owe nothing as long as you report the fraud within 60 days of spotting it.

With debit card fraud, a card user's liability also is limited to $50, but only if you report the fraud within two business days after you find out about it. If you wait longer, but notify your bank within 60 days, your liability is capped at $500. Delay even longer and you might be out the full amount.

However, many financial institutions offer additional protections, Uwabor says. After you report the fraud, many banks will put the money back in your account temporarily, which is known as issuing provisional credit, she says.

You get to keep that money while the bank investigates, Uwabor says. That's what happened to her a few years ago when a fraudster swiped $900 from her bank account. She got the provisional credit, and it took her bank a few weeks to investigate, she says. They determined that she was indeed the victim of fraud and that $900 was returned to her account, she says.

To protect yourself from debit card fraud, Long recommends logging into your bank account every day – something she does every morning between checking her email and looking at Instagram. “Just take a look and make sure nothing weird went through,” she says.

Myth No. 4: Debit card overdrafts hurt your credit score. If you've opted for overdraft protection, your bank can allow a debit card purchase to go through even if there's not enough money in your account. But if you accidentally use your debit card before your paycheck posts to your account and get hit with an overdraft fee, will it hurt your credit score? Not usually.

The fact is, none of the activity associated with your bank account – including your debit card use – gets reported to the three major credit bureaus, Long says.

However, you should know that repeated or unresolved overdrafts could get you reported to ChexSystems, a consumer reporting agency that tracks bank account behavior and could prevent you from opening up a new bank account.

And there is one possible scenario in which a bank account blunder could get reported to Equifax, Experian or TransUnion and then hurt your credit. If you overdraw your bank account and fail to repay the funds, your bank might close your account and send the debt to a collection agency, Long says. Once that happens, the debt may be reported to the major credit bureaus as a collection account, which is considered a serious negative item that typically stays on your credit for seven years, according to MyFICO.com. “But that's a long, drawn-out process,” Long says.

So, considering how much Americans use debit cards, why do all these myths persist? “Debit cards have just become so common that people use them without thinking about it,” Uwabor says. “It's easy to take them for granted.”

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