Debit or Credit? What You Should Know

We are all familiar with the point of sale transaction vernacular: will this be debit or credit. What’s the difference, and how does it impact you? Most folks really don’t understand the difference, but the difference can be vital.

Unfortunately, in today’s world of ID theft and financial fraud the decision of debit versus credit matters. Many people feel that our banks will help to protect us in the case of a stolen card. While this true in most instances, it’s not guaranteed. Making the wrong choice between debit or credit may mean the difference between being protected or not.

Banks strive to protect their customers and indemnify (make whole after a loss) after a stolen card is wrongfully used. But some transactions may force the bank to refuse to pony up for your financial loss. If a check card customer uses the debit option, which requires the use of a personal pin, and the card and pin are stolen, the customer could be in trouble.

Using a check card as a credit card at the point of sell will require a signature and identification, at least in theory. Using the debit card option just requires a personal pin. If a theft steals a check card, or check card number, along with the personal pin (by looking over your shoulder or any other devious method), the bank may refuse to cover the wrongful charges. The bank’s stance is that the customer did not protect their personal pin; therefore, the bank can hang the responsibility of the wrongful charges on the customer. The personal pin is personal and should be protected!

The moral of the story; chose the credit option whenever possible. If you don’t have that choice and must use your debit option, be careful and protect your personal pin.

About the author

Troy Von Haefen, CFP®
Troy Von Haefen, CFP®

One Comment

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  • It’s always a good idea to cover the keypad when you punch in a PIN number, and certainly don’t write down your PIN number in your wallet in case you lose it.

    PIN transactions cost merchants less than signature transactions, at least for now. And you can’t get cash back with a signature transaction.

    A prepaid debit card like the MiCash Mastercard is a good choice for some consumers who can’t get or do not want a checking account or credit card.

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