Is It Safe to Use My Credit Card for Purchases?

Credit cards serve two primary functions for consumers. They offer a more convenient payment method than checks, and they supply a quick source of immediate credit, though at a hefty price when compared to other types of consumer loans. Your credit card is connected to a pre-approved line of unsecured credit, which means you are not offering any assets as collateral that the lender can seize if you fail to repay your debt.

Function

Credit cards allow you to purchase items or services now and pay for them later. You and the merchant each keep a copy of the receipt, and the bank credits the merchant for the amount charged. The bank sends the transaction information to the credit card company which, in turn, credits the bank, and the card issuer sends you a bill for the charged amount.

Significance

Your credit card is often the most convenient payment medium. With the tremendous growth in consumer purchases made via the Internet, credit cards allow you to execute your transactions quickly. The merchant can easily authenticate your card, and payment to them is guaranteed by the bank or creditor, which means your merchandise can be sent immediately.

Benefits

It is considerably safer to use your credit card for purchases -- whether by phone, online or in a store -- than money orders, checks or cash, due to protection against fraudulent charges provided under the Fair Credit Billing Act of 1974. If you fear having your number stolen when using your credit card for purchases, you should know that the Fair Credit Billing Act limits your liability to $50 for fraudulent charges on your card. Using your credit card for purchases generally makes it easier to obtain refunds, return items and dispute charges.

Zero Liability

A number of credit card companies now have a zero liability policy, which means you will not be held liable for any fraudulent charges. This policy makes it easier to dispute charges on your card that you did not approve or when items acquired are not as they were represented. It is advisable to check with your specific credit card company for the proper steps to take for disputing a purchase as some companies have certain restrictions attached to their zero liability policies.

Debit Cards

You may think debit cards are an effective deterrent for high credit card bills, but in regard to fraud, they pale in comparison to credit cards. The longer you wait to report any unauthorized activity with your debit card, the higher your liability. According to the Federal Trade Commission, reporting unauthorized transfers within two days caps your liability at $50, but waiting longer can raise it to $500, and reporting beyond 60 days can result in unlimited loss.

Perishable Credit Cards and Third Parties

Some credit card companies, such as American Express, MBNA (Maryland Bank National Association) and Discover, have created temporary or perishable credit cards. These credit cards are issued with an online purchase or merchant-specific credit card number for a specific time period. Making payments through third-party payment services, such as PayPal, also provides a safe way to make purchases, without exposing your bank account or credit card information.