Financial Literacy for Everyone

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Credit, Debt and Fraud Protection

Consumers often ask whether debit or credit cards provide greater consumer protection against fraud. The question itself indicates a few key preconceived notions about fraud as it relates to personal finance. As a consumer it's important to know that:

  1. You aren't liable for unauthorised purchases. All major credit and debit card issuers provide $0 liability guarantees for unauthorised charges.
  2. Fraud isn't all that prevalent. Of all the purchases made with credit cards and debit cards, less than 0.05% are affected by fraud.

Yet it's understandable that consumers are concerned about the security of their hard-earned money. Many people want to know if using either a credit card or a debit card might make dealing with fraud easier.

Credit or debit?

Credit cards make breaches of financial security slightly easier to address. With a credit card, a consumer has at least 21 days from the time a statement is available to pay the amount due. That's plenty of time to notice unauthorised charges, notify your issuer of the problem, and have them removed from your bill. With a debit card, on the other hand, a thief could clear out your bank account before you notice. Although you will recover all of your money, finding your bank account empty can be quite a shock.

What about cash?

The real difference in financial security comes when you compare both credit cards and debit cards to cash. If a thief gets hold of your cash, there's really nothing you can do, except make a report to the police. Cash doesn't come with a $0 liability guarantee, after all.

What about prepaid cards?

In terms of liability, prepaid cards are similar to debit cards. The primary difference is that instead of being linked to a bank account, a prepaid card is linked to a reloadable prepaid account.

How to protect yourself

There are a few steps you can take to further insulate yourself from financial intruders, no matter how you choose to go about spending your money. It's always a good practice to:

  • Check your credit reports for inaccuracies. It's a good idea to request a copy of your report from a credit reporting agency every year.
  • Keep your Tax File Number (TFN) private. Make sure to give out your TFN only to reputable companies after you have contacted them, not after they have contacted you.
  • Shred financial documents. Garbage bins are a main source of information for identity thieves.
  • Make arrangements for your mail while on holiday. Mail overflowing from a mailbox is a sign of opportunity for both identity and property thieves.
  • Use secure passwords. Avoid opening up your financial world to anyone who knows your pet's name or your birthday, and make sure to change your passwords regularly.
  • Verify web security. Only provide personal financial information on "https" websites.

Credit cards and debit cards have far greater purchasing power than the cash you carry in your wallet, yet they also offer considerably lower liability than other forms of payment. However, fraud can lead to considerable hassle and financial troubles, so make sure you continue to take steps to safeguard your personal finances.