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What Selecting "Credit" When You Run Your Debit Card Actually Does

By Patrick Morris - Updated Oct 4, 2018 at 1:11PM

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Many consumers think selecting "credit" when they make a purchase on their debit card protects them, but the truth may surprise you.

It's easy to think a simple push of a button can help protect you as a consumer -- but the unfortunate reality is, it can't.

In the wake of the recent Target data breach scandal, with more than 70 million affected consumers, many people have begun to truly question how exactly they should be paying for everyday goods and services. There are a number of reasons you should never use your debit card, largely all stemming from the reality that debit cards provide fewer rights and protections to consumers.

Several credit cards, fanned out

Image source: Getty Images.

As a result of countless factors, the thought of a credit card still makes many people uneasy, and it's easy to think that a simple solution is to just select "credit" after a purchase and think that the debit card has now become a credit card, with all the rights, protections, and benefits, but none of the potential drawbacks.

Unfortunately, there is one major problem, and what you select after that purchase has no impact on your rights as a consumer. And it is vital for all consumers to know that simply selecting "credit" on the PIN pad after a purchase doesn't transform a debit card into a credit card.

The truth of running debit as credit
The lines between debit and credit cards are blurry because you can run a debit card as a credit card. However, even though the transaction is logged as credit, as the Federal Deposit Insurance Corporation puts it, you are still "authorizing a debit (withdrawal) from your account, not a credit card transaction." 

In reality, one of the only differences between running a card as debit or credit is the time in which it takes the transaction to flow through to your account. When a PIN is entered, the money is immediately deducted -- or debited -- from the account, whereas if credit is selected, the payment goes through the credit card network and the payment is withdrawn within a few days.

I recently spoke with Jason Oxman, CEO of the Electronic Transactions Association. He said that selecting credit or debit simply affects "how the transaction is submitted to the network." In essence, the distinction between credit and debit at the point of sale has no bearing on what rights a consumer does or doesn't have. Instead it only changes the "rails" on which the money transfers from the consumer's account to the merchant's.

More fees to merchants
In fact, according to the Federal Reserve, even though on the surface they are seemingly the same, it actually costs merchants up to twice as much money in interchange fees -- what they pay for every transaction -- when a transaction is run as credit versus debit.

While it can be an easy thing to assume, the reality is that running a debit card as a credit card has almost no bearing on the individual consumers apart from the longer period it takes for the transaction to be reflected in a bank account. The reality remains that the best way to protect oneself is to monitor transactions that are posted to an account and call the bank or credit card company immediately if something looks incorrect.

What happened at Target is indeed a difficult and troubling thing, but all consumers can learn how to better protect themselves moving forward and ensure they are not victim to large-scale, or even small-scale, fraud.

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