Updated on 11.01.16

Credit Card vs Debit Card: Which Should You Use Online?

Holiday shopping online? A credit card will offer far better fraud protection than your debit card.

In case you hadn’t heard, most banks and businesses began transitioning their credit cards and credit card terminals away from magnetic stripes and toward EMV technology last October. Also referred to as “chip and pin technology” and “chip technology,” EMV stands for “Europay, MasterCard, and Visa,” and is the standard for fraud protection in most advanced countries around the world.

As Jon Krauss, senior manager of credit product management at Discover, told us earlier this year, the microchip in chip cards “generates unique, dynamic data every time a consumer completes a transaction, making it harder for fraudsters to collect their card information.”

While this is certainly good for consumers, the news does come with one caveat: Chip technology doesn’t extend to purchases made online – even if you have a card that includes it already.

Four Reasons Credit Cards Beat Debit Cards for Online Shopping

Still, most experts still suggest using credit cards for your online purchases – especially if you’re choosing between credit and debit. While the risk of fraud is always lurking in the background, credit cards come with additional protections that debit cards simply lack. Here’s what we mean:

Most credit cards come with zero-fraud liability.

“Using a credit card provides an extra layer of protection against fraud and it makes getting a refund easier,” according to Discover’s website. While certain protections are extended to both debit and credit card transactions from the federal government, most credit cards take these protections a step further by offering their own form of zero-fraud liability.

If someone does get your credit card number and makes a purchase online, chances are good you won’t be held liable for a single cent of it if you report it in a timely manner. Sadly, the same can’t be said about purchases made with debit cards at all. More on that in a minute.

Federal protections are greater for purchases made on credit.

Thanks to the passage of the Fair Credit Billing Act, liability for unauthorized charges made with credit is limited to $50 for both in-person and online credit transactions as long as you report the incident within 60 days.

However, as noted above, most credit cards offer zero-fraud liability, meaning you won’t be on the hook for a penny. Most credit card issuers will put the fraudulent charge on hold while they conduct an investigation so you won’t be out the money in the interim, either.

Debit cards, though, are a whole ‘nother animal. Since the money you spend comes out of your bank account, you may have to wait days or weeks to get a refund for a fraudulent transaction made with your card. Further, your liability jumps to $500 if you don’t catch the fraudulent transaction within two business days – and you could even have your bank account drained with no recourse after that.

Here’s how the Federal Trade Commission words it: If a fraudulent transaction made with debit goes unreported for more than 60 days after your statement is sent, you could be on the hook for “all the money taken from your ATM/debit card account, and possibly more; for example, money in accounts linked to your debit account.”

credit vs. debit card for online shopping

Use a credit card for online purchases: It will offer more consumer protections than a debit card does in the event of fraud.

Credit cards make it infinitely easier to dispute charges.

Another reason credit is better than debit for online purchases: dispute resolution. What happens if you order something online and it shows up damaged or doesn’t show up at all? Or what if you don’t get what you ordered?

“When you pay with your credit card, you may have the ability to withhold payment or dispute a charge if there is an issue with your purchase,” notes Discover on their blog. Most of the time, your card issuer will even take care of the investigation details, too. If you receive something funny or damaged in the mail, you just need to pick up the phone and call them.

However, the situation may not be resolved so smoothly if you made the purchase with a debit card instead. “When you pay with your debit card, the funds are immediately withdrawn from your account, leaving you without the cash until you can settle the dispute with the merchant on your own,” says Discover. And, even if your bank takes up your cause, you’ll have the burden of proof on your shoulders.

Using credit cards responsibly can help you build credit over time.

Where debit cards link directly to your bank account and let you use your own money, credit cards offer a short-term loan you have to pay back. While this may sound scary, this situation could actually be a boon to your credit health and credit score. By making purchases with your card and paying your bill right away, you’ll exhibit responsible credit habits that can boost your score over time.

Remember, debit cards don’t help you build credit, nor do they report your account activity to the three major credit reporting agencies – Experian, Equifax, and TransUnion. If you actually want to improve your credit, using the credit you already have responsibly might be the best way.

What to Watch Out For

If you’re using credit instead of debit for online shopping this year, here are some tips that can help:

  • Pay your balance in full each time your statement closes to avoid interest charges. Most of the time, it makes sense to use credit cautiously and slowly. Especially at first, you should only use credit for small purchases you can pay off right away.
  • Shop only on sites with added security features. Most secure sites have a URL that begins with “https.”
  • Avoid spammy or unprofessional-looking websites. Some fake sites pose as legitimate retailers in order to get your information.
  • Keep your credit and personal information private whenever possible. Don’t give out anything more than you have to, and never reveal your credit details unless you have to.
  • Monitor your accounts daily (or at least every few days). You need to know a fraudulent transaction has taken place in order to protect yourself. We suggest checking in with your accounts every few days at the very least.

Final Thoughts

When it comes to making online shopping safer, credit cards have indisputable advantages over debit cards. Not only do they offer additional protections themselves, but they also come with greater government protections as well. At the end of the day, the added convenience and security features are what matters most.

Do you use credit or debit for your online purchases? Why?

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