The rise of prepaid debit cards over the past few years has been of some concern to credit card issuers. The credit industry isn’t happy about competition of any kind, and prepaid debit cards have a kind of populist appeal.
Some of this appeal has to do with the fact that not everyone is eligible for a credit card. However, another reason has to do with security of prepaid debit cards versus credit cards.
The Target data breach in late 2013 was one of the most high-profile data exposures ever. It caused tens of millions of people heartburn. Toss in those at Michael’s and Neiman Marcus, and credit card holders were not happy campers this year. The one segment of the population that could not have cared less, however, was debit card users.
Credit versus debit
Credit card data doesn’t just include credit card numbers. It includes a lot of personal information. Although Social Security numbers haven’t been compromised in any breach yet, that data is stored somewhere, and one wonders if it is only a matter of time before that all-important number becomes vulnerable.
Debit cards can also hold personal information data, but the data collected is often not as broad as that taken by credit card issuers. That’s because credit isn’t actually being issued with debit cards. You merely load money onto it from a bank account, and sometimes that bank data isn’t even stored with the debit card company.
Credit card companies can have charges run up against them in a data breach. Debit cards require a PIN number, so it’s much harder to get at a customer’s balance. That’s why credit cards are so eager to move to EMV technology.
Should you switch to debit?
So, should you toss out your credit cards, and start using debit cards, especially since some of them are starting to offer rewards?
No. Bad idea. Here’s why.
The most important reason is that you want to build and maintain a good credit score. Debit cards do nothing for your credit.
Beyond this, credit cards have limits that reach into the thousands for most people. That gives you a lot of flexibility, and when it comes to transactions, you always want flexibility. For instance, if you are buying a big-screen TV, you want that purchase on your credit card.
Not only do you not want to put thousands in cash onto a debit card because the value in the card is still vulnerable, but you want the “dispute protection” a credit card offers. Most credit cards also offer extended warranty and price protections, whereas debit cards do not.
Location, location, location
You also are better off using credit cards in certain places over debit cards. Restaurants are a popular place for fraud. If your credit card gets skimmed, you aren’t held liable. But if you debit card does, or if the waiter “mistakenly” pulls too much off your card, you are not in as strong a position.
Some debit cards also will hit you with overdraft fees if you aren’t careful, whereas most credit cards no longer hit you with over-the-limit fees.
With credit cards moving to EMV technology, security will soon become a much less significant issue than it is today, rendering this dilemma moot.
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