Your debit card is a pretty simple piece of plastic. Swipe it, chip it, complete your transaction, and build your credit without any fees whatsoever.
Wait a second – not so fast. Like many money myths, it turns out there are some misconceptions about your trusty debit card. And, we are all guilty of falling for these misnomers from time to time.
So, without further ado, here are some common debit card myths you need to start dispelling right now.
Myth #1: Debit cards are better than credit cards for building your credit score.
Debit cards do not affect your credit score. Repeat: Debit cards do not affect your credit score.
So why does this myth still exist? Maybe it is because debit cards and credit cards are both plastic and look almost identical? Perhaps because they are often used interchangeably, you think they have the same influence on your FICO digits?
Regardless of why you may think debit cards help your credit score, it is time to put this myth to bed for good. “(Just because your debit card) has a Visa or MasterCard logo on it, doesn’t mean it is reporting to the bureaus like a credit card would,” says Jennifer Beeston of Guaranteed Rate Mortgage. “Wrong, wrong, wrong.”
Arianna Nunez of website TopCashback.com further explains. “Credit scores are numbers which represent how well you manage a line of credit over your borrowing history. Therefore, to build a credit score, you must borrow money and learn to pay off debt,” says Nunez.
“Debit cards don’t have a line of credit since they automatically release the funds from your checking account,” she says.
In other words, any financial transaction that has to do with borrowing and repaying money – like a loan for a car or home or spending on your credit card – can either help or harm your credit score. Why? Because this demonstrates how well you handle credit. Your debit card, on the other hand, does not serve the same function and your debit card spending is not attached to a creditor. Instead, when you use your debit card, this is akin to spending your own money.
Myth #2: Debit cards do not offer rewards.
While debit cards may not build credit, you can still earn rewards when you use these handy plastic cards. Debit cards and rewards, you say? That is right. In some cases, debit card rewards even rival popular credit cards rewards.
“Another myth concerning debit cards and checking accounts, in general, is that neither have offerings which come with reward programs,” says David Bakke of MoneyCrashers.com. “That’s just not true.”
One reason why debit card isn’t readily associated with rewards is because there aren’t as many reward programs as there are with credit cards. But, says Bakke, a bit of Internet research can lead you in the right direction, to the right card, and to the best rewards.
Myth #3: Debit cards are safer to use than credit cards.
Scams, fraud, and identity theft often get lumped into the world of credit cards. While that is certainly correct, it also tends to go hand-in-hand with the myth that your debit card is somehow safer, a veritable fool-proof fortress to would-be hackers.
Unfortunately, it is only until after your money’s been stolen that the thought of “maybe my debit card isn’t immune to theft” comes to mind. Advancements in banking security certainly make debit cards safer, but here is the thing: They have fewer consumer protections than your average credit card.
“If a thief steals your debit card info and uses it to buy something, and you wait too long to report it, you could be on the hook for $500 (if you wait between two and 60 days) and the total amount stolen (if you wait more than 60 days),” says Sarah Hollenbeck of Offers.com.
However, under the regulatory Fair Credit Billing Act (FCBA), your liability with a credit card – under the same circumstances – is capped off at $50. This amounts to one-tenth of the responsibility you would have with a debit card. Why the difference?
“When fraudulent activity occurs on your credit card, no money leaves your bank account, which is not the case with debit card fraud,” says Nunez of TopCashback.com. “Using your debit card has more risks and less protection than most people think.”
Myth #4: Debit cards are free of fees.
Credit cards come with their fair share of fees for late payments, balance transfers, foreign transactions, and cash advances. And let’s not forget about penalty interest, arguably the worst fee of all. To boot, you may also have to pay an annual fee just for having the card in your wallet.
Debit cards, by contrast, get a shining reputation as the card with no fees – mainly because they don’t offer the same services as credit cards. You might want to think again.
While it’s true that debit cards don’t have those fees, they are not fee-free. In fact, your debit card is linked to your checking account, and as such, it’ll carry the same associated fees.
“Most debit cards have basic fees such as overdraft, service, daily balance and ATM fees,” says Nunez.
You can, however, avoid bank fees by being aware of them first and checking the terms and conditions of your checking account. Oftentimes, you can ask your bank to waive fees either temporarily or permanently. If your bank won’t oblige, you can also switch to a fee-free bank account that offers an associated debit card that is – you guessed it – fee-free.
Myth #5: It’s against the law if you don’t have an EMV chip debit card.
Imagine going to the store, and at the point of sale, being asked to insert your chip into the card reader. Your mag-stripe card is the only one that holds a spot in your wallet, so instead, you swipe it, and next thing you know, alarm bells go off, the authorities are summoned, and you’re carted off in the paddy wagon. Huh? This hypothetical situation all came about because some folks think they need to use an EMV chip card instead of their mag swipe card.
We left this one last simply because it’s the most ridiculous debit card myth around. The simple myth-busting answer is that merchants don’t care what kind of debit card you have, as long as you can pay them with it. The government doesn’t care either.
At the same time, banks, payment processors and merchants are pushing to migrate from magnetic to EMV cards and this is often why people think they have to have an EMV debit card. To the contrary, if you don’t have a chip card yet, don’t worry. The shift has been slow coming in the U.S. and you can still use your swipe card with zero penalties – or jail time.
Don’t doubt your debit
They say there’s a little bit of truth in every lie, and myths are the same way. They are easy to believe because they often sound true.
But, by understanding the truth about your debit card, you can better manage your money, spend responsibly and learn about some of the features, perks, and quirks that your debit card offers. Lastly, you can give your debit the credit it deserves – without confusing it for credit.
By Paul Sisolak
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