Credit cards, as we have already covered in parts 1-4 of our Credit Cards 101 series, are extremely powerful tools which you can put to work for you on your journey toward better credit. Yet not only do credit cards have great credit building potential (assuming you manage the accounts properly), but they also feature some other great benefits as well. For example, you may not realize it but your credit cards represent the safest and most secure form of payment you carry in your wallet.
To be fair, both debit cards and credit cards come with attractive consumer fraud protections. If you are carrying cash and you lose your wallet then, unless a good Samaritan happens to find it and contacts you, you are simply out of luck. Your hard earned money will be lost with no chance of recovery.
With both debit and credit cards you will have very limited potential liability in the event the card is lost or stolen, provided that you inform the card issuer promptly. Both types of plastic have the ability to protect your hard earned money though, as you will see below, credit cards are able to do so more effectively.
The Fair Credit Billing Act (FCBA)
The FCBA features some very strong protections which could come in handy if your credit card or your account information is ever stolen and used for fraudulent purchases. Whether your credit card account information becomes compromised as a result of loss, a stolen account number, a data breach, or any other type of scam this consumer protection law has your back. In fact it is because of the FCBA that credit cards are unequivocally the safest form of payment in existence for consumers.
When fraudulent charges do occur, and we all know they occur far too often, the FCBA caps your responsibility for the fraud at just $50. However, you probably will never actually be required to pay a single dollar if your credit card account is used without your permission. All 4 major credit card networks (MasterCard, VISA, AMEX, and Discover) have policies which waive even this $50 as a matter of customer service.
So, if some scam artist steals your credit card information and uses it to buy a new home entertainment system you won’t be left holding the check for his unauthorized shopping spree. The catch, unfortunately, is that you must report any unauthorized charges within 60 days. This means that you need to monitor your statements and credit card account activity often in order to make sure that all the charges posted to your account are legitimate. After 60 days the FCBA no longer protects you from the fraud, but your bank might still choose to let you off the hook. Still, it is a pretty big gamble to take so your best bet is always to report unauthorized charges or lost credit cards as soon as you notice the issue.
Electronic Funds Transfer Act (EFTA)
As mentioned earlier, you have protections available to you in the event that your debit card information is stolen and used without your permission as well. The EFTA also limits your liability for unauthorized charges to $50, but only if you report the fraud to your bank within 2 days. After 2 days your liability for the fraudulent charges soars to a much more disturbing $500.
Additionally, keep in mind that even if you report fraudulent debit card use promptly your own personal funds could still be tied up for several days while the bank investigates your claim. Since the funds in your bank account are likely funds that you rely upon for other monthly financial obligations (childcare, mortgage, rent, auto payment, insurance, gas money, grocery money, etc.) it could be a major inconvenience to be denied access to your funds for even a few days. This potential inconvenience is just one more reason in a sea of many why credit cards can be a powerful tool to both protect your money and build your credit.