4 Little-Known Disadvantages of Debit Cards

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KEY POINTS

  • Debit cards offer limited fraud protection.
  • Debit cards do nothing positive for your credit score.
  • Debit card holds can be a hassle.


A debit card comes with its own set of potential pitfalls.

Debit cards and credit cards may look the same, but they don't work the same way. Here are some disadvantages that come with using your debit card.

1. Holds can cost you big

If your debit card carries a Visa or MasterCard logo, there's been a recent change. Now, instead of holding $125 when you use your debit card to pay for gasoline, gas stations can hold up to $175. Unless you carry a healthy balance in your checking account at all times, this hold could trigger an overdraft fee, particularly if you have to wait days for it to clear.

One workaround is to walk into the station and use your debit card and buy only the amount of gas you believe you will need. For example, if you just need to top off your tank, ask the cashier to charge you for $25 worth of gas. Before doing anything, though, make sure the gas station you're using is one of the many that won't apply a hold if you pay at the register.

2. The spending limit tied to your account

While it may sound simple, the amount you can purchase using a debit card is limited to how much you have in your bank account. Most of the time, that's a good thing and may prevent you from overspending. But let's say you have an emergency and need more. With a credit card, you could call your credit card company and ask it to raise your spending limit. You don't have that luxury with a debit card.

Another problem with limits involves how much money you can get from an ATM in a 24-hour period. Let's say you run a small resale business and find an amazing deal on inventory you've searched for high and low. You're at a trade show and the vendor does not accept debit cards. The amount of inventory you can purchase that day will be tied to the amount of money you are authorized to take from a local ATM.

3. Limited fraud protection

Imagine that your debit card is lost or stolen. According to the Federal Trade Commission, if you notify your bank within two days, you're responsible for up to $50 in fraudulent charges. But if you don't notice your card is missing for several days, you can be responsible for up to $500 in fraudulent charges. If you're one of those folks who rarely uses your debit card and you notify your bank after 60 days, you could be responsible for all fraudulent charges made using the card.

Even if you notice the card missing right away and immediately call your bank to cancel it, the bank has up to two weeks to return any funds fraudulently spent to your account. If you're living paycheck to paycheck, that could mean two weeks of waiting for desperately needed money.

A debit card is not covered by the same level of fraud protection as a credit card.

4. Does not benefit your credit score

No matter how old you are or how long you've had access to credit, you never want to stop building and polishing your credit score. That's because your credit score impacts so many areas of your life. It determines how easily you can take out a loan, whether you qualify to rent an apartment, and even if you'll be hired by a company that uses credit scores as part of their hiring process.

Debit cards have a lot going for them, including ease of use. What a debit card can't do for you, though, is build your credit score. That's because banks do not report your debit card habits to the major credit bureaus. If 99% of your financial transactions are carried out using a debit card, that means that 99% of your financial transactions are invisible to credit reporting agencies.

There's definitely a place in your wallet for a debit card, particularly if you're looking for a financial tool that reminds you to spend only what you have available. However, debit cards are imperfect and must be carefully monitored. Whether you stop using your debit card entirely or limit its use, weigh the pros and cons and do what's best for you.

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