- 1 3 Reasons Why Your Credit Card is Better Than Your Debit Card
- 2 What is the best credit card to start with?
- 3 Bad Ways To Use Credit: A List of 21 Credit Card Mistakes
- 4 The Credit Card Journey: From Applying to Buying
- 4.0.1 What do I do when I get my credit card?
- 22.214.171.124.1 Step 1: Activate the card. Instructions for activation will be included with your card.
- 126.96.36.199.2 Step 2: Ensure your account information is accurate, including your full name, address and contact information, and review your assigned credit line to know how much you have available to you.
- 188.8.131.52.3 Step 3: Read your Card Agreement and other Terms and Conditions. The Card Agreement explains how your account balance is calculated and what your annual percentage rate, or APR is, so it is important for you to read this information before you start using the card.
- 184.108.40.206.4 Step 4: Sign the back of the card.
- 220.127.116.11.5 Step 5: Sign up for online account management, become familiar with the online tools offered and set your preferences for bill payment reminders, spending alerts and automatic payments.
- 18.104.22.168.6 Step 6: You are ready to use your card at the store. If asked at the counter if your card is debit or credit, select “credit.”
- 4.0.2 How do I use my card correctly?
- 4.0.1 What do I do when I get my credit card?
- 5 Credit Card Machines: Answers to Frequently Asked Questions
3 Reasons Why Your Credit Card is Better Than Your Debit Card
Credit cards offer several distinct advantages over debit cards in the areas of fraud protection, earning rewards and building up your credit score.
By the way, debit cards still exist.
More an artifact from the era before travel bloggers and points experts hyped rewards credit cards, debit cards are like a stripped down version of their more beloved line-of-credit cousins.
However, you might be surprised to know that, in 2012, Americans used their debit cards to pay for $47 billion of goods, services, and other transactions. What may lie behind all this spending is the fact that debit cards use real money to pay for things, while credit cards are essentially borrowing money.
A recent survey from CreditCards.com confirms this, pointing out the majority of consumers like that debit cards deduct cash from your checking account.
“What makes a debit card attractive,” the site’s Tamara E. Holmes asked. “Sixty-six percent of consumers surveyed in 2014 about the features they most value in their preferred debit card said having funds deducted immediately from their accounts was the best feature.”
When it comes to payment cards, we spend all of our time focusing on credit cards, but a recent article from NextAdvisor Content Manager Jessa Barron got us thinking about what the advantages and disadvantages of a debit card and how it compares to your typical credit card.
So, we talked with Jessa about her research and asked her plenty of questions about the credit card vs. debit card debate. What we found was pretty interesting, and we’re going to lay it out in the next few sections of this article.
Credit Card vs. Debit Card: Fraud Protection
Our extensive research of credit cards reveals that almost every card you get will have some sort of fraud protection with it. For instance, the Discover it a lets you “freeze9rdquo; your card through their app if you suspect your card has been stolen.
More importantly, most of the popular credit cards you’ll see have something called $0 liability, which means that you aren’t responsible for fraudulent charges on your account. Not responsible, that is, as long as the credit card company concludes that you didn’t make the charges.
That conclusion usually doesn’t take long to arrive at. For example, four years ago someone used my Visa card to make charges in Atlanta, Georgia, while my wife and I were in San Diego, California.
The representative with whom we spoke could see we’d just used the card at a San Diego In-n-Out, so it was pretty easy to tell there was fraud going on. We weren’t liable for any of the charges and were sent a new card. This type of service is pretty common in the credit card industry.
“Chase, Capital One, Citi, American Express and Discover offer $0 fraud liability,” Jessa said, “and they won’t hold you responsible for any credit charges if they were made by you.”
Life gets a little harder when someone uses your debit card to make fraudulent purchases, though. Jessa shared a story from her own life to illustrate this. She was at a music festival and her debit card fell out of her purse at some point.
She went to her bank to get the fraudulent charges refunded, but it wasn’t that easy. The bank printed out her transactions for the past seven days and they went line by line, asking for explanations for each debit.
“It took three weeks to get the issue resolved,” she said, “so I was out of my money for three weeks.”
In our opinion, that’s the greatest drawback of a debit card’s fraud protection and liability. A close second is an amount for which you’re liable, which can change depending on how quickly you notify your bank of a lost card or fraudulent charges.
Jessa’s post linked to a great article from the FTC called, “Lost or Stolen Credit, ATM and Debit Card”. The article explains your liability for fraudulent debit purchases:
- $0 liability when you report the lost card before unauthorized charges show up
- $50 liability if you report the charges or lost card within 48 hours
- $500 liability you report the lost/stolen card more than 48 hours after, and within 60 days of getting your bank statement indicating fraudulent charges
- Full liability (100%) if you report the theft or lost card more than 60 days after your statement
There is one saving grace amid all this, though.
“If someone makes unauthorized transactions with your debit card number, but your card is not lost,” the FTC’s site says, “you are not liable for those transactions if you report them within 60 days of your statement being sent to you.”
Why the big difference between debit card policies and credit card policies? Jessa said it’s a matter of money – debit card transactions are taking money directly from your checking account, while charges to your credit card aren’t actually paid for yet.
It’s also an issue of laws, she pointed out. When you make a credit card transaction, you’re protected by the Electronic Funds Transfer Act and the Fair Credit Billing Act. The same rules don’t apply to your bank, though, and that’s why fraudulent charges on a debit card are a headache.
Overall, it’s pretty clear that credit cards have the decisive advantage over debit cards when it comes to fraud protection.
Credit Card vs. Debit Card: Rewards
There was a time when using your debit card got you rewards in the same way you get rewards from credit card usage. However, those types of perks started to die out after serious reform came in the years after the Great Recession.
According to The Points Guy’s Richard Kerr, the reason for this decline in benefits stemmed from the Dodd-Frank Wall Street Reform and Consumer Protection Act. The post-recession bill included a clause that capped the amount of money banks could charge a business for processing transactions from customers using the bank’s debit card.
That fee cap led to a loss income, and, Richard said, banks weren’t too interested in offering free stuff like travel rewards. So, they axed rewards programs, as well as free checking and other customer-focused perks.
“The bank has no reason to incentivize you to use your debit card, and no reason to pay the cost of sustaining a rewards program,” Richard wrote. “Cue the end of free checking, the beginning of increased checking account fees and the slow death of debit cards that earn points and miles.”
Credit cards, on the other hand, are in the glory days of rewards. The Chase Sapphire Reserve has reached cult status for its 100,000 intro-miles offer and yearly $300 cash back on travel purchases.
The Capital One Venture card offers 40,000 intro points as well as double points on all purchases, a bonus that could easily net the average family 50,000 points each year.
In my own personal experience with the Hyatt Visa card, my wife and I have been able to rack up enough points and anniversary nights to get three to four nights a year at our favorite luxury hotel, which is, according to my research, worth anywhere from $680 to $1,000.
Just like fraud protection, credit cards have much more rewards to offer to the average consumer than debit cards.
Credit Card vs. Debit Card: Credit History
Another big advantage credit cards have over debit cards is that you can use them to build your credit. Every time you make an on-time payment, your credit card company reports the payment to Equifax, TransUnion and Experian. Those credit bureaus then report the information to companies who determine your credit score.
Debit cards, on the other hand, don’t offer you that important advantage. Why? The principle behind credit is that a company gives you money to make purchases on the promise that you’ll pay that money back. There is no borrowing or trust needed with debit cards; the money is taken from your checking account within minutes of making your purchase.
There is a huge drawback to your payment history being forwarded to credit bureaus, though. Your payment history accounts for 35% of your credit scores, so just one payment 30-days past due can have a serious impact on your score.
This downside is one of the reasons why Jessa says consumers should be very intentional and methodical about which credit cards they choose. If you don’t think you have the discipline to pay your bills on time, she said, you should think about holding off on a credit card until you feel like you’re ready for the responsibility.
A Few Final Tips About Credit and Debit Cards
Deciding whether you want to use a credit card or debit really comes down to self-awareness. As Jessa said, you should know if you have the level of discipline it takes to pay your balance in full, every month. If you don’t have that discipline, stay away from credit cards – you’ll end up paying hundreds of dollars in interest fees over the course of one year.
Also, if you aren’t good at budgeting but you want to get better, consider putting your credit cards on the shelf and using your debit card until you’ve got your finances straightened out.
Credit cards bill you for purchases you made one month in the past, so it can be hard to keep track of your bottom line in real-time. Apps like Mint or YNAB can help, but only so much when you lose track of your credit card charges and statements.
Finally, Jessa said, be sure you know exactly what fees you can expect from your bank account or credit account. Reading the fine print is the best way to understand what these fees are. Banks are notorious for piling on overdraft fees if you use your debit card when you don’t actually have money in the bank.
If you’re convinced you want a credit card, we encourage you to stop by our credit card reviews page. Our reviews cover what the card is offering, its fees and terms, what other people are saying about it as well as its long-term benefits.
What is the best credit card to start with?
15% of your credit score is based on how long you’ve had credit. The longer you have a credit card, the sooner you start building your credit score, and the sooner your score raises due to older credit. A line of credit (a credit card, loan, etc.) won’t help your score until it has been open for at least 2 years!
“What credit card should I open first to start building credit?”
Honestly, which credit card you choose is up to you (don’t worry, I will provide links to recommendations) and really depends on your current financial and occupational situation, but there are definitely some criteria you want to follow when deciding:
1. As low of a monthly interest rate as possible
2. You want NO annual fees
3. You want to be able to change your initial credit limit
4. Have some sort of incentive for you (usually cash back)
5. Convenient payment option
The problem is that most credit cards that are advertised as good starter cards with crazy rewards like cash back and triple points also come with a very high-interest rate. What can you expect? You’re a credit baby. Banks make their money from your mistakes.
Certain types of starter cards help you avoid this high-interest rate:
1. Student cards –Generally low-interest rate cards that have low credit limits and minimal rewards
2. Secured cards – Lines of credit that require an initial deposit of some amount as collateral. If the credit limit is $500, your initial deposit will be $500.
Bad Ways To Use Credit: A List of 21 Credit Card Mistakes
by Silicon Valley Blogger on 2008-02-11 34
While growing up, I didn’t learn much about personal finance nor the concept of credit cards, which were matters I wasn’t exposed to until later in life. I learned a few basics such as bill paying, check writing, and bank accounts from my parents but for the most part, I was left to my own devices throughout college and my early adult life. So it’s a really good thing I didn’t own a credit card until I had successfully established some savings and picked up my very first books on finance: Bogle on Mutual Funds and Your Money Or Your Life, whose pages I devoured quite handily.
But I must admit that when I received my very first credit card, I was slow to use it. I’m one of those people who gets stuck by inertia and takes a while to change my typical behavior. I did not have a credit card during my college days (thank goodness) as it seemed to me that during those days, credit card companies were not frequenting campuses in the manner that they do today. I don’t recall seeing too many offers for credit floating around my university then, and I can’t speculate how I would’ve reacted if I did see any. Ultimately, this led to me getting my cards during a time that I felt financially responsible for myself as I worked on my first job. Such a start may have caused me to be more cautious and responsible about using credit, a fantastic thing!
Nowadays though, anyone with a pulse can pick up a credit card very easily and begin getting themselves into quick trouble. It’s way too convenient to start using a card, which can be done with your eyes closed without the benefit of an instruction manual. I thought I’d help out a little by putting together all the pertinent warnings I’ve come across when dealing with the plastic. Protect your credit and avoid debt by knowing what it is you shouldn’t do!
How To Get In Trouble With Credit Cards
#1 Misusing balance transfers.
We put together a list of great balance transfer credit cards. But if you’re going to transfer your balance to a new credit card with a lower rate, you’ll have to check if it’s a promotional rate. It’s probably not wise to do a transfer if you’re unable to wipe out your debt before a promo rate expires and jumps up to a much higher rate. On top of that, you’re charged a transfer fee if you move your balance.
#2 Not shopping for the best rates.
The best way to use a credit card is to always pay your balance in full. If so, then the card’s rate may not be as important to you as other features would be, such as having rewards programs and long grace periods, or having no annual fees. But if you believe you’ll be carrying a balance, then by all means, find those cards with the lowest interest rates (e.g annual percentage rates or APRs). Note that one card can carry a number of APRs, so make sure you review all the card’s terms. Tip: Shop for the best rates if you’re going to carry a balance!
#3 Falling for introductory rates.
Because APRs can change on you, you’ll need to watch out for those introductory rates (also known as teaser rate, special rate, “limited time only” or promotional rates). The rates may sound sweet so that they entice you to sign up and transfer your balances over to a card but you may find that after a given period of time, those rates shoot up. Tip: Transfer your balance over if you’re planning to pay it off before the teaser rate expires and changes to a higher APR.
#4 Ignoring the terms and other fine print.
Some credit cards have you automatically signed up for certain features. If you read the fine print, this may be something you can end up opting out from and avoid getting ensnared into something you’d rather not participate in or pay for. According to a FindLaw.com survey, only 44% of customers read the terms of their credit cards, which means that some of us may not realize that rates can change on us, or that fees can be triggered when we don’t expect it. Tip: Check if you need to opt out of anything.
#5 Taking out cash advances.
It’s just not a good move to have to take out cash advances. There are high service fees and possibly higher rates associated with cash advances so it’s definitely something I don’t ever plan to use. Cash advances are costly, while saving the money for what you need is always the cheapest way to go.
#6 Not reviewing your monthly statements.
We religiously review our monthly statements to make sure there are no erroneous charges on it and to keep our eye out for fraudulent activity.
#7 Not checking your credit reports.
It is highly recommended to review your credit report at least once a year to catch any errors it may have. Mistakes in your report can lead to consequences to your credit score, higher interest rates, issues with employment or housing, or indications of fraud. Report any problems to the credit bureaus, which do receive notices of errors online.
#8 Not working with creditors when there are problems.
You’d be surprised how easy it is to work and negotiate with creditors who are looking to keep your business. If you’ve got any questions about your bill or the terms of your card, don’t hesitate to ask. I’ve had the pleasure of successfully disputing charges on my card as well as getting many fees waived just by having amiable talks with customer service.
#9 Signing up for retail credit cards.
They’re everywhere offering you an instant 10% off your day’s purchase! I’ve got family who simply cannot say “NO” to these offers and they’re now swimming in retail cards. These cards are a lousy deal because they have potentially higher rates and they just add to the clutter in your wallet. Are the one time discounts worth the hassle of dealing with more cards, open credit lines and additional debt?
#10 Paying bills without prioritizing them.
I’ve talked a lot about prioritizing our bills as a way to save on costs and protecting our interests. Pay off those bills that are the most important (those that keep the roof over your head) and most expensive (the highest interest rate debt) first. Not caring about the order of your bills can potentially jeopardize your living situation if you find that you’re having trouble covering the most essential bills by month’s end.
#11 Using credit instead of cash or debit cards.
Again, there’s no issue with using cash vs credit or debit cards if you can afford to pay off all your balances in full. But by using cash or debit cards, you’ll only be limited to spending what you have in your bank account. There’s always that danger of going beyond what you can afford when you’re tapping your credit, making it too easy to get in over your head with debt.
#12 Not paying credit card bills on time.
I can’t tell you how many times I’ve lost out on good money by having to cover late payment fees. I’ve messed up on occasion and forgotten to pay a bill or two on time. That’s actually one thing I’m seeking to improve — to be more organized and systematic about things. Not being organized just means money lost, and I’ve paid dearly for my absent-mindedness. To avoid late or missed payments, sign up for auto payments.
#13 Paying the minimum on credit cards.
You don’t have to play by the credit card company’s rules. They want you to pay only the minimum! But why should you? Pay more than you have to and you’ll beat your debt faster.
#14 Spending on credit for the rewards.
It’s been said that a third of credit card holders use their cards for the rewards (miles, points, perks, gifts, etc) but if you’re feeling too comfortable about spending on credit because you’ve convinced yourself that you’re getting the rewards for free, then this is a big mistake. Rewards are never worth the debt you can potentially bury yourself under.
#15 Being in denial about one’s spending.
It’s easy not to think you are not really spending your own money when you are using credit. A lot of card holders sweep reality under the rug and think that they can spend now and worry about paying about their purchases later. Or that “things will work out” and they’ll find the money to cover their credit card bill somehow. I’m blaming this type of thinking for much of the rampant debt problems we’re seeing everywhere.
#16 Collecting credit cards.
Credit cards can be cute. Or slick. Or really cool these days. They’ve become attractive on many fronts and many people are succumbing to the marketing forces behind these cards. There are a lot of people out there who have turned to credit card collecting as a hobby or even as a money-making venture via credit card arbitrage. Regardless of your reason for having a lot of cards, you could be facing the temptation to use them…a lot. I only keep a limited number of cards because there’s risk in carrying them; the risk of fraud, loss, error or mismanagement of this tool has kept me from owning more than a couple of cards.
#17 Putting daily expenses on credit.
If you’re responsible about paying your cards, I don’t really see an issue with paying all your expenses through credit. The trouble occurs when one is unable to control their spending because all of it just goes on credit. You know, out of sight, out of mind. Because expenses and debt can add up really quickly, it’s best not to pass off everything to the plastic.
#18 Closing credit cards improperly.
Apparently, there’s a system behind closing your credit cards. You should never close the following cards you carry:
- any card with a balance
- your only card with available credit
- your only credit card
- your oldest credit card account
- your card with the most favorable terms
In your quest to simplify our finances, you may be tempted to cancel accounts you don’t use or don’t plan on ever using. Bad move? Well this could be a mistake as far as preserving a favorable FICO score. It’s to do with your credit to debt ratio.
#19 Adding additional names to your card.
Unless you completely trust whoever it is who has their name on your card, you shouldn’t be adding anyone to your account. The moment you do, you’ve lost control of how the card may be used, which just means that you may encounter more spending on it than you bargained for.
#20 Using your credit card internationally.
If you’ve ever used your card outside of the country, then you may already know that there are extra charges and fees imposed on international transactions. If you’d rather save on this cost, then go with cash and traveler’s checks instead. Still, what I like about using a credit card abroad is that there may be less risk in doing so, since transactions on a card can still be disputed if there’s any question, while there’s the risk of cash and checks getting stolen when you’re traveling. Personally, I pay extra for the convenience of using credit during trips.
#21 Exceeding your credit limit.
Going over your credit limit can incur you some unwanted, costly over-the-limit charges and fees that can also make a dent on your credit report. So here are a few tips to avoid maxing out:
- review your statements regularly and pay in cash when you’re close to the limit
- guideline: stay within 30% to 50% of your credit limit
- if necessary, request for an increase in your credit line (though it could just be an excuse to spend even more, so be careful!)
We haven’t had much trouble with our credit cards because we do pay our balances in full each month, review our statements for possible billing errors or suspicious activity, and have had good luck with dealing with our credit card companies. They’ve displayed great customer service when we’ve disputed questionable transactions and when we’ve asked to negotiate unexpected and unwanted fees and charges (regardless of who was at fault!); they’ve been proactive with tracking and monitoring for fraud and we’ve received some wonderful rewards in the process. I’m actually a fan of credit cards but I guess you can say that the beauty of credit cards is in the eye of the beholder… or rather, in the way they are used.
Copyright © 2008 The Digerati Life. All Rights Reserved.
The Credit Card Journey: From Applying to Buying
Getting your first credit card is a big step, so it’s important to start your credit card journey on the right foot. Credit cards differ from debit cards. They offer the opportunity to build credit history and earn you rewards. Here are some tips to help make your experience a positive one, from good types of credit cards to apply for to using your card wisely.
In order to choose a card, it helps to know the different types of applications, rewards offerings, fees associated with the card and lastly the tools that can help you manage your account.
Credit card fees vary, so it’s important to evaluate how you’ll use your card and the fees that could be associated with it. For example, if you plan to travel a lot, you’ll want a card that doesn’t charge a foreign transaction fee. These fees should all be clearly documented when you’re applying for your card. There are plenty of credit cards without annual fees or other types of fees.
Different credit card issuers provide different tools to help you manage your credit card. Tools will vary by issuer and should be considered before applying to ensure that you have the tools you need to manage your spending and make your payments on time.
An unsecured, traditional credit card that you can apply for on your own if you have good credit and sufficient income (income requirements vary by credit card issuers). This is the ideal card to apply for and use. However, if you are new to credit, you may not qualify for this type of card just yet. Some credit card issuers offer student credit cards specifically designed for college students who have limited or no credit history that have lower income requirements.
When a traditional card is not an option available to you, a secured credit card can be a great solution to building the good credit you need to ultimately obtain a traditional credit card. A secured credit card requires that you put down a deposit which typically determines your credit limit (for example, a $200 deposit gets you a $200 credit limit). After that, the card works just like a traditional credit card and allows you to build credit.
Some credit cards reward you for using them by giving cash back incentives for everyday purchases.
With some credit cards, you can earn frequent flyer miles or rewards points when you travel or when you spend.
Some credit cards offer reward points that can then be redeemed for a variety of items, including merchandise, gift cards or cash back.
Some credit cards don’t offer any rewards or incentive programs at all.
If an annual fee is a term of your card, you will be charged that fee each year for using the card.
Foreign transaction fees are charged on purchases made in a foreign currency, or on purchases that involve a foreign bank.
Balance transfer fees are charged when you transfer a balance from one account to another.
Late payment fees are charged when you miss paying at least the minimum payment by the payment deadline.
Insufficient funds fees can be charged by both your credit card company and your financial institution.
A flat fee or percentage may be added any time you withdraw cash using your credit card. While a cash advance fee is typically a percentage of the amount withdrawn – the interest rate is usually higher than the standard purchase rate.
A personal finance tool that gives you a fast, easy way to see how you’re really spending on your card—so you can make smart spending choices.
A convenient feature you can opt into that automatically pays your bills ensuring you never miss a payment.
A Paydown Planner tool helps you plan to pay off your entire account balance or just simply make it more manageable.
Receive mobile and e-mail alerts that help remind you when payments are due.
Some issuers provide free Credit Scores on your statements or online. These are based on information from your credit report, and knowing your score can help you can stay on top of your credit and avoid surprises.
Spend management tools help you monitor your spending and make paying off your balance more manageable.
Resource centers provide valuable information to help you learn about credit.
Not sure where to research? The Internet is a great tool to help you explore your options. Check out these sites to research different credit cards:
It’s important to start your credit card journey on the right foot.
Get Cash Back on Gas and Restaurants with Discover it ® Chrome.
After you’ve weighed your options and decided which card best fits your needs, you can start an application. Follow these steps to make the application process easier.
Step 1: Gather the information needed to apply, such as your:
- Social security number
- Current address
- Current employer
- Total annual gross income – the amount of money you earn in a year before taxes
- Length of employment at current job
- Information on any of your bank accounts (checking and savings)
- If you are applying for a student credit card you may need information such as: school name, graduation date, and area of study for school verification
Step 2: Decide how you want to apply. Regulations require that if you are under 21, you must apply in writing (online or paper application), so you cannot apply over the phone.
What do I do when I get my credit card?
After you’ve been approved, the credit card company will issue your credit card to you through the mail. When you receive your card, here’s what you should do.
Step 1: Activate the card. Instructions for activation will be included with your card.
Step 2: Ensure your account information is accurate, including your full name, address and contact information, and review your assigned credit line to know how much you have available to you.
Step 3: Read your Card Agreement and other Terms and Conditions. The Card Agreement explains how your account balance is calculated and what your annual percentage rate, or APR is, so it is important for you to read this information before you start using the card.
Step 4: Sign the back of the card.
Step 5: Sign up for online account management, become familiar with the online tools offered and set your preferences for bill payment reminders, spending alerts and automatic payments.
Step 6: You are ready to use your card at the store. If asked at the counter if your card is debit or credit, select “credit.”
How do I use my card correctly?
Here are some best practices to follow when using your card:
- Keep your card in a safe place.
- Determine when you’d like to use your credit card, such as for gas, groceries, or strictly for special purchases like a vacation.
- Make sure you can afford each purchase before you buy. Credit cards are not a way to live beyond your means.
- Pay off as much of your balance as you can by the payment due date. If you can, try to pay your balance in full to avoid finance charges.
- Always stay well within your credit limit, and don’t spend all the available credit on your credit card.
- Try to avoid cash advances. Cash advances are when you use your credit card like a debit card and withdraw money from your account. Usually, there are fees associated with cash advances, and interest will start to accrue immediately at the cash advance APR.
Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
Credit Card Machines: Answers to Frequently Asked Questions
Accepting credit cards doesn't have to be complicated for small businesses. The most common place to start is with a credit card machine. You'll also have to consider swipe rates, merchant accounts, hardware and security standards, but we've got you covered. Here are the answers to frequently asked questions about credit card machines for small businesses.
If you already know about credit card machines and just want to find the best credit card processor for you, visit our best credit card processors page.
How much do credit card machines cost?
Many vendors offer free credit card machines. Those that don't will allow you to either buy or lease your equipment. Pricing varies and depends on the model and features, such as EMV (Europay, MasterCard and Visa) and NFC (near-field communication) capabilities (more on this below). Costs also depend on whether you rent or purchase your machine, and whether you get it from the vendor or a third party. Generally, the most basic credit card machines cost less than $100.
Other costs to consider include credit card processing fees (see below), monthly service fees, setup fees, gateway fees and compliance fees. These costs vary greatly by vendor, but many also waive some fees for new customers.
What are the different credit card processing fees?
There are generally three types of transaction fees or swipe rates: interchange plus, tiered pricing and flat percentages.
Interchange plus — also known as wholesale pricing, true pricing and cost plus — is the preferred choice because it gives businesses the same low rates used by big-box stores. Interchange plus charges businesses a flat fee that consists of a small percentage plus some cents per transaction. Businesses can also often negotiate lower rates based on high sales volumes.
Tiered pricing, on the other hand, depends on the type of credit card being used. This pricing structure is less favorable because it works by bundling different types of credit cards into tiers with increasing swipe rates. These tiers are classified as qualified, mid-qualified and non-qualified cards. These include regular cards, debit cards, rewards cards, business cards and other types of credit and debit cards. Generally, credit card processing companies decide which types of cards are qualified, mid-qualified and non-qualified for their particular service, so tiers and pricing will vary greatly, based on who you ask.
To illustrate, Flagship Merchant Services, our pick for the best high-volume credit card processor, uses both interchange-plus pricing and tiered pricing. (Note that tiered pricing is the advertised cost, so you'll have to ask for interchange pricing.) Flagship's interchange-plus rate is 0.30 percent plus 10 cents per transaction, and is negotiable for higher sales volumes. Its tiered pricing, however, starts at 0.38 percent for qualified debit cards and 1.58 percent for credit cards, plus 19 to 21 cents per transaction, and then increases for midqualified and nonqualified cards. [Go here for a full review of Flagship Merchant Services credit card processing.]
Some credit card processors also charge a flat percentage per transaction. This is typically the case with mobile credit card processors, such as Square and PayPal, which charge 2.75 percent and 2.7 percent per swipe, respectively.
Trying to find credit card machines? Fill out the questionnaire below and receive free quotes from our vendor partners.
How do credit card machines work?
Credit card machines are typically connected to the Internet, phone line, mobile device or computer to send data to the processor. For most credit card processors, funds are transferred from the customer's bank to the business's merchant account. In some cases, the credit card processor uses a merchant account and holds funds on your behalf, and then directly deposits them into your checking account at your discretion.
What is a merchant account?
A merchant account lets businesses accept credit cards. It transmits payment data from a customer's bank to your bank and authorizes credit card transactions. Merchant accounts are offered by the credit card processor or directly by a financial institution, typically a bank. Usually, businesses will have to apply and get approved for a merchant account. As mentioned above, however, not all credit card processors require a merchant account.
What is the difference between a credit card machine and a POS system?
A credit card machine is simply a credit card reader and PIN pad. A point-of-sale (POS) system, on the other hand, is a complete checkout terminal that comes with a credit card machine, monitor or tablet, cash register, printer and other peripherals. POS systems also come with additional software or apps that track inventory, monitor sales, generate discounts, create financial reports, help with marketing and other features.
Looking for a POS system? Check out our roundup of the Best POS Systems for Small Business.
Can I use an iPhone, iPad, Android and other mobile devices with a credit card machine?
Some credit card machines are compatible with tablets, but the most common way to accept credit cards with an iPhone, iPad, Android and other mobile devices is by using a credit card swiper. This small dongle attaches to the headphone or auxiliary plug on a mobile phone or tablet, and processes credit cards using the processor's mobile app. Another way to accept credit cards using a mobile device is by using a virtual terminal, a feature that lets you manually input credit cards into the app.
NFC technology lets businesses accept credit cards without swiping them. To accept mobile payments, you'll need an NFC-enabled credit card machine, such as Apple Pay, Android Pay or Samsung Pay.
EMV technology aims to defend consumers and businesses from credit card fraud and cyberattacks. It also protects businesses from liability in the event of a credit-card-related security breach. Traditional credit card swipers read the magnetic stripe on the back of credit cards. For better security, EMV reads a chip embedded on new credit cards instead. Most new credit card machines are equipped with both an EMV chip reader and a traditional credit card swiper.
For more information on EMV readers and chip cards, check out our full coverage: EMV: What Small Merchants Need to Know.
What security features should I look for?
The two main security features to look for in a credit machine and credit card processor are PCI compliance and EMV capabilities. PCI is the industry standard for credit card processing, which consists of several security measures, such as point-to-point data encryption. Although credit card processors have PCI as part of their service, it is businesses' responsibility to make sure they are compliant, to avoid hefty fees and putting their and their customers' data at risk. Learn more about PCI compliance.
How soon are funds transferred to my bank account?
As with most banking transactions, credit card funds go through an Automated Clearing House (ACH), which is typically completed within two business days. There may be delays in some cases, usually due to holds by banks or chargebacks by customers disputing their charges. Each credit card processor and bank has its own policies, so be sure to read the fine print regarding holds on funds.
Can I still get a credit card machine if I have low or bad credit?
Generally, yes. Although personal credit is not always considered when a business wants to obtain a credit card machine, many credit card processors consider it when processing merchant account applications. If you want to obtain a credit card machine and you have low or bad credit, look for a credit card processor that doesn't require a merchant account or specializes in high-risk merchants. One such credit card processor is Payline Data, our pick for the best credit card processor overall for small business. [Go here for a full review of Payline Data credit card processing.]
Sara is a tech writer with a background in business and marketing. After graduating from UC Irvine, she worked as a copywriter and blogger for nonprofit organizations, tech labs and lifestyle companies. She started freelancing in 2009 and joined Business News Daily in 2013. Follow Sara Angeles on Twitter @sara_angeles.