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Your Legal Rights: Credit Cards vs. Debit Cards

elymiles

20th June 2006

From the Office of Minnesota Attorney General Mike Hatch

Trade and commerce during ancient times often occurred through bartering and the exchange of precious stones. Barter and stones were supplanted by metal coins, which dominated trade and commerce until merchants introduced and popularized the use of “checks” during the Middle Ages. Paper currency, first circulated during the late 1600s in the colony of Massachusetts, had until very recently been society’s preferred medium of exchange.

Today, the use of credit cards and debit cards is more prevalent than ever as more consumers use “plastic” to purchase goods and services than either cash or check. In 2003, consumers used credit cards in 21 percent of consumer purchases and debit cards in 31 percent of consumer purchases. Although credit and debit cards tend to look alike and often bear the same “Visa” or “Mastercard” insignia, they differ significantly in several important respects, including billing structures, error notification requirements, and financial liability in the event of unauthorized use.

The Minnesota Attorney General’s Office encourages consumers to know these important differences between credit and debit cards.

Picking Plastic: Credit or Debit?
Unlike debit cards, which automatically deduct any charge from your checking account without incurring interest, credit cards allow consumers to buy goods and services on credit. Consumers using credit cards have the option to either pay the monthly balance in full, or simply pay the minimum amount and incur finance charges. The amount of interest owed depends on your annual percentage rate, or APR.

The APR is disclosed when you open the credit card account and is noted on each bill you receive. Credit card companies sometimes offer new members an “introductory rate,” which will rise after a set period of time. Credit card companies also sometimes include a provision in the credit card agreement that permits them to raise your interest rate if you “default,” such as pay late, go over your credit limit, or bounce a check – including checks to accounts with other creditors. Finally, credit card companies sometimes reserve the right in their credit card agreements to simply increase your interest rate for any reason at all. In selecting a credit card, be sure to read the entire credit card agreement and understand if and how your interest rate may increase.