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Online shopping: 4 reasons credit cards beat debit cards

Here's our take on why credit cards are the best for online purchases.
Written by Holly Johnson, Contributor
Reviewed by Evan Zimmer

It all comes down to security. Microchip technology doesn't extend to purchases made online -- even if you have a card that includes it already.

Most experts 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:

1. Most cards come with zero-fraud liability

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.

Also: The most exclusive credit cards

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.

2. 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 that you won't be out the money in the interim, either.

Debit cards, though, are a different story. 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."

Also: The best starter credit cards for no credit

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

3. Credit cards make it 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.

4. 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.

Also: How to build good business credit

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

If you're using credit instead of debit for online shopping, here are some tips:

  • Pay your balance in full each time your statement closes to avoid interest charges. It makes sense to use credit cautiously and slowly most of the time. 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.

[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]

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