Credit Cards vs Debit Cards - Clemson University



Credit Cards vs Debit Cards

|CREDIT CARDS |DEBIT CARDS |

|An error in billing: |An error in billing: |

|Notify creditor in writing within 60 days after the first bill showing the |Write or call your financial institution immediately, but no later than 60 days|

|error. |from the date of the first statement of showing the error. |

|Include name, account number, statement that you believe there was an error and|Include name, account number, explanation of why you believe there was an |

|why, the date of the error. |error, what kind of error, the date and dollar amount of the error. |

|They must acknowledge your letter within 30 days. |They must promptly investigate an error and resolve it within 45 days, except |

|They have 2 billing periods, no more than 90 days, to either correct your |for errors involving new accounts, POS transactions, and foreign transactions –|

|account or tell you why they believe the bill is correct. |with these they have 90 days to investigate the error. If the investigation |

|If there was a mistake, you do not pay any finance charges on the disputed |takes longer than 10 days, (or 20 days with new accounts), they must put back |

|amount. |into your account the amount in question while they finish the investigation. |

|If no error was found, they must send you an explanation of their findings and |The financial institutaion must notify you of the results of its investigation.|

|promptly send a statement of what you owe. |If it finds no error, they must explain in writing why they believe no error |

| |occurred and let you know that they deducted any amount recredited during the |

| |investigation. |

| |You may ask for copies of documents relied on in the investigation. |

|Loss or Theft: |Loss or Theft: |

|Your loss is limited to $50 per card. |Protection varies from one card to another. |

| |Your loss is limited to $50 if you notify the financial institution within 2 |

| |business days after learning of loss or theft of your card or code. |

| |But, you could lose as much as $500 if you do not tell the card issuer within 2|

| |business days after learning of loss or theft. |

| |If you do not report an unauthorized transfer that appears on your statement |

| |within 60 days after the statement is mailed to you, your risk is unlimited |

| |loss on transfers made after the 60-day period. That means that you could lose|

| |all the money in your account plus your maximum overdraft line of credit, if |

| |any. |

|Merchant Disputes: |Merchant Disputes: |

|Merchant does not already have your money for the disputed item. |Merchant does already have your money for the disputed item. This means that |

| |while the dispute takes place, the money stays with the merchant and will only |

| |be returned if the dispute is mutually settled in your favor at the end. |

|Personal Account: |Personal Account: |

|The card is not tied to your bank account, so further account issues do not |Because the card is tied to your account, the amount disputed is an amount that|

|occur. |has already been deducted from your account. During the dispute, this money |

| |stays out of your account. This may cause other transactions to default, |

| |forcing your to pay substantial fees, which can further trigger universal |

| |default from the credit bureaus and the problem cascades from there. This may |

| |be resolved in the end, but in the meantime, it takes a whole lot more effort |

| |of your part to try to catch and prevent all the side effects. |

|Rewards: |Rewards: |

|Better rewards are offerred. |Fewer and less valuable rewards are offerred on debit cards. |

|Money Not Taken Instantly: |Money Taken Instantly: |

|Since the money is not taken from your account immediately, it still earns |As mentioned before, the money is taken from your account immediately, so there|

|interest. |is no float period that your money could still be earning interest. |

| |Also, if you use your debit card to pay for gas at the pump, for paying your |

| |hotel bill during check-out, or doing a car rental, the bank will put a hold on|

| |your account for an amount that exceeds the total bill. So, you could pump $10|

| |worth of gas, and the bank may put a hold on $100, and if you don’t have a lot |

| |in your account, this could cause you bounce checks even though the money is |

| |there. If you use your debit card to rent a car, they may pull your credit |

| |report, which will lower your score. |

|Added Services: |No Added Services: |

|Many credit cards have added benefits, such as extending the warranties on the |Debit cards do not have these added benefits. |

|items purchases, and insurance for rental cars and airline travel. | |

|Tracking Spending: |Tracking Spending: |

|There are no accidental overdrafts on your checking account. |It is much harder to track your spending, unless you are diligent in recording |

| |every transaction. One mistake can result in accidental overdrafts. |

|Banks Don’t Trick You Into Fees: |Banks May Trick You Into Fees: |

|Since it’s not tied to your bank account, you are not confused by what your |Banks aren’t always helpful in reporting your exact balance. Receipts from |

|balance is. |ATMs may or may not include every debit transaction to date. |

| |Some also report your balance including your overdraft protection, leading you |

| |to believe you have more money in your account than you actually have. |

| |Also, banks often allow customers to use their debit card for purchases that |

| |exceed the amount of money in their account and then are all too happy to |

| |collect the fees that are incurred. |

| |And, if you have several debits from your account that brings your accont |

| |balance below zero, their computer program is written so that it takes out the |

| |highest amount first, which would more likely cause your account to become |

| |overdrawn, then each successive transaction would further put you in the |

| |negative, and you would have overdraft fees for each transaction. You can go |

| |to the bank and argue that they should take out all the smaller transactions |

| |first and that you would then be willing to pay the overdraft fees on the |

| |remaining transactions, and often they will go ahead and do that for you. |

|Credit History: |Credit History: |

|Your good payment habits are reported to credit bureaus, so your credit score |Payments made by debit cards are not reported to credit bureaus, so your good |

|is improved with good habits. |habits don’t help you build your credit score. |

|Accepted: |Not Always Accepted: |

|Credit cards are the preferred way to leave a deposit on a rental car or for a |Debit cards are not always accepted as a deposit on a rental car or for a |

|hotel. |hotel. If the vendor does accept them, they sometimes freeze a portion of the |

| |money in the account, which can cause problems for other payments. Even when |

| |this money is returned, it can take up to a week to make it back into your |

| |account, so may believe you have the money before it actually gets there. |

|Online purchases: |Online purchases: |

|You can dispute the charge if the merchant disappears or you don’t receive your|When you use your debit card to pay for something now that you’ll get later, |

|purchase. |and the merchant goes bust or your purchase never arrives in the mail, you have|

| |no recourse. |

When you use your debit card, and are given the choice of “credit or debit”:

1. if you choose credit, your account is 17 times more likely to be hijacked

2. the merchant is charged more for the transaction ($1.50 vs 17 or 18 cents)

3. if you choose credit, and sign for the transaction, the transaction will be processed over the VISA network and falls under the protection of the zero liability protection if the purchase was fraudulent or you were dissatisfied with the product

4.

5. if you choose debit, and use your PIN, the transaction may be processed over non-VISA networks, which may or may not match Visa’s zero-liability policy

Credit card pitfalls:

1. Some credit card bills are now being due within 15 days (instead of the traditional 30 days) so that when you don’t pay on time, they can charge a $40 late fee.

2. There was a case in Austin of a man who made a payment online on his credit card bill the day before it was due. The company received in on time, but waited 48 hours to credit his account, and then charged him a $35 late fee and raised his interest rate 15 points.

3. Banks are starting to raise customer’s rates, even if they haven’t made any late payments, based on data they have received from credit bureaus of late payments on other accounts – and they are required to give you just 15 days notice – and the rate hike is applied to your entire balance, not just on future transactions after being notified – this should be illegal!

4. Banks are required to post payments the day they are received in the mail, but we would never know when they did in fact receive the payment (unless you register the mail requiring a signature upon receipt?).

5. Be careful of stored-value cards – these are like Tiger Stripe cards where you load it up with cash and then can use it as a way to electronically pay for items. Beware of offers from First Premier Bank – they offer a limit of $250, but charge so many fees that there is little money left in the account, after paying a $95 program fee, a $29 setup fee, an $84/year participation fee and an annual fee of $48. Check the terms and fees. Usually, you should only have to pay around $5 to open an account, and then check and see if there is an annual fee or not.

Do they check your signature? What happens if they don’t?

One guy at Krispy Kreme signed his receipt “Dunk N Donuts”. Another one at an aquarium signed his name “Shamu” and drew a picture of a whale. They were accepted both times! The merchant can be held liable for transactions where the cashier does not check for signature, so if was a fraudulent transaction, the merchant loses the money.

Take the quiz:



Approaches to paying off credit card balances:

When you have several credit cards,

1. Pay off lowest ones first

2. Laddering (makes more financial sense)

a. Goal is to pay off the card with the highest interest rate

b. Pay minimum payment on all cards but the one with the highest interest rate – throw all your extra money into that one.

c. One proven way to pay more toward the expensive card to get rid of it faster is to make a separate payment every 14 days. Mark your calendar every 14 days and write that check or send our online payment that day. Making a payment every 14 days equals one month’s payment you’ve made at the end of the year. Work these payments around your statement cycle to avoid paying late fees.

3. The third method is to make ½ the minimum payment every 2 weeks, so by the end of the year, you will have made an extra month’s payment. This will cut down your total time to pay it off by 1/4

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