How I learned to stop worrying and love my credit cards

I had a few spare minutes the other morning before Pilates, so I decided to check in with our budgeting platform (Mint, not sponsored, we just really like them) and categorize some transactions. 

I was surprised to see a $174 transaction, made with my personal credit card, that I didn’t recognize. I buy some random things here and there, but I usually have a pretty good sense of the amounts even if I don’t recognize the merchant. This looked weird to me, so I googled the merchant and saw that it was a gas station near Memphis, TN. 

I haven’t been to TN since I visited a dear friend in Nashville in December, so I knew this couldn’t be right. I opened up my app, disputed the charge, and answered a couple quick questions. Citi immediately canceled my card and began the process of sending me a new one. 

And then… I moved on with my life. 

But Jen, shouldn’t you be stressed out?

Ok, to be totally honest: for the first 20 minutes of Pilates class, I was. 

I found myself feeling worried, and even a little violated. How did my information get compromised? Was it my fault? Was this the first in a series of unfortunate events? Would I be plunged headlong into a maelstrom of trying to prove my identity in various and sundry ways like Sandra Bullock in The Net? (I realize I’m probably dating myself with that reference, but the movie left an impression!) 

Most terrifying of all… would I have to call customer service?

But as icky as it felt at first, I calmed down pretty quickly. 

Like most of us, I’ve been informed several times that my information’s been leaked in corporate data breaches. To protect my identity, I freeze my credit profile, use credit monitoring services, and keep an eye out for any suspicious inquiries or items on my credit file. But because I investigated a lot of credit card fraud back in the day, I know that a fraudulent charge on a real credit card is a sign that the card itself has been compromised, not my identity. It’s possible, but not especially likely, that someone actually accessed my cardholder account profile, so the damage is easily limited by acting quickly.

A primer on card fraud

It’s relatively easy to steal a card’s information, without having to put any effort into cracking a password or hacking a computer. A careless or unscrupulous merchant may have compromised my card information during a transaction; this could have been online, or when I handed my card over in a restaurant (Mr. Fortuna swears this is how his card got compromised a couple of years ago). I’ve provided my card information during the occasional phone order (I hate doing this, but sometimes it’s the only way). There are also fraudsters who install tiny data-sniffing devices called “skimmers” at easily-accessed transaction points like gas pumps or ATMs. (A brilliant former bank colleague of mine, Heather Scheetz, has an excellent piece at her site Security Uncomplicated on how to fuel up more securely.) 

As a consumer, there’s almost no way of knowing when this happened, other than that it was “sometime after I opened the card.” The thief might have even stolen information from a whole bunch of cards and then sold it on the dark web, muddying the trail and passing the risk of actually creating and using fake cards to someone else. 

Fraudsters can use card information in purely online or phone transactions, but to use the card in a physical location, a fraudster can also create counterfeit physical cards. It’s not especially difficult to duplicate mag stripe data (which just contains a card’s information) to match the true card. Chips are difficult to fake, but it’s possible to exploit weaknesses in the tech to prompt the merchant to swipe instead. Most US merchants still offer magnetic stripe readers even as chip and tap-to-pay become increasingly popular, because upgrading technology can be expensive for merchants and not everyone has chip cards. 

If they’re not equipped to fake a stripe, less-fancy fraudsters can simply print or stamp the card’s information on plastic to make a basic fake card. In-store, they claim that the card “never swipes correctly anymore,” and then ask the merchant to manually type in the card information. Some merchants will decline to do this and ask for another form of payment… but not all of them, because merchants like getting paid. (Same, honestly.)

I share all this to help you see why there’s not much point trying to retrace your steps and figure out exactly how your card was compromised, and that knowing the point of compromise wouldn’t change my next steps much (other than “not shopping there again”). I’m pretty sure it’s just this card’s information that was captured, but I am going to check my credit file for any concerning items soon. I’m also due for a password update in a few key places, so that’s going on my to-do list. But because of how credit card fraud typically operates, when the credit card is canceled, the fraud risk is over; even if a hundred people got that card data, the closed card will be declined in future transactions. Because I use credit cards for nearly all the transactions in my life, I know I’m dealing with a minor hassle, not an actual disaster. 

Why credit is safer than debit

Reformed con artist turned expert fraud consultant Frank Abagnale (a.k.a. the “Catch Me If You Can” guy) says you should use a credit card over a debit card every time to protect your identity and your money. I couldn’t agree more: in my years of investigating both credit and debit fraud, I saw firsthand that the bank would cheerfully write off credit card fraud. They kept a large margin in the budget for just such happenings. At first I thought it was just good customer service, but I learned that it’s also because consumer financial protection laws are dramatically different between credit and debit. 

If your debit card is compromised and you don’t catch it in time, the rules are, frankly, terrible: your liability can be effectively unlimited. If you report that your card was lost or stolen before any unauthorized transactions occur, you have zero liability. If you report it within two days, you face just a $50 liability limit. But if it takes you more than two days to notice, you face a $500 liability limit, and if it takes you longer than 60 days to realize what happened, you have no protection at all. 

If you lose your debit card – or even think you might have lost your card – report it IMMEDIATELY. Many people aren’t in the habit of checking on their transactions daily, and many people also can’t afford to lose $500 for no reason. Even if you can theoretically afford it, a lot of us are still going to be mad.  

But for credit cards, federal law limits cardholder victim liability to $50 within the first 60 days after you receive your billing statement (not after the card loss, as with debit), regardless of how much is charged by the fraudster. Banks have to plan for this, and as a matter of policy, many don’t hold the victim liable for a single penny. You can also dispute items that you didn’t receive or returns or payments that weren’t applied. You even have 120 days to dispute a problem with the quality of goods or services received (the rules are a little more nuanced, but it’s still nice to know it’s an option!). Again, all this means you should be checking over your transactions on at minimum a weekly basis.

Still, as I often put it to my clients: when your credit card is stolen, they’re spending the bank’s money. When your debit card is stolen, they’re spending your money. And that’s why credit cards are an invaluable tool in your financial well-being, regardless of what certain financial experts claim. 

Sorry, Dave. You’re wrong about this one. 

I have said elsewhere that even though Mr. Fortuna and I started out following most of the Dave Ramsey plan, he and I have a number of personal and professional differences of opinion. This is one area where I’m sure he’s wrong, and until he convinces the government to step up consumer protections for debit card users, I’m going to disagree. Credit card use is a great way to protect your financial well-being…

… as long as you are willing and able to commit to using your credit cards responsibly. 

If you struggle with impulse spending, or if you don’t live on a spending plan, credit card use can quickly turn into credit card debt. And credit card debt is terrible for your financial health. 

This isn’t intended to shame anyone, by the way. It’s hard out there – and it’s incredibly expensive to be poor. Many people take on debt (including credit card debt) to meet short-term survival needs because it feels like their best (or only) choice. Unfortunately, this can create downstream consequences for their future selves that limit their options even more. If you’re currently in a position where you can pre-empt or break the debt cycle and make the choice to stop borrowing money in risky ways, we recommend that you do it. 

Credit card debt is bad, m’kay?

We all know that credit card debt isn’t great, but the pitfalls of credit card debt include two major specific issues that put it at the top of my list when helping clients identify their debt paydown priorities.   

Toxic interest rates

The interest rates are borderline-predatory. First of all, the terms and conditions can be confusing. There’s the purchase APR, there’s a cash advance APR, and then the penalty APR, all of which can be variable. And you might not even have noticed those when you got your card because the card put the super-low introductory APR or balance transfer APR in big bold font and buried the high APRs in the fine print. At the end of the day, credit cards are just unsecured loans, and the interest rates (currently hovering just over 19%, with penalty rates as high as 29.99%) reflect that. Interest should be something you earn, not something you pay.

Putting your credit profile at risk

Using credit cards the wrong way can trash your credit score and your borrower profile faster than almost anything else. The twisty thing about credit, as most people know, is that you need to have it to get it, but if you actually use all the credit you get, it can hurt your ability to get more. 

High credit card debt can hurt your debt-to-income ratio (DTI)– which is pretty much what it sounds like: the ratio of your total monthly debt payments divided by your gross monthly income. DTI is one way lenders assess your ability to pay back the new credit that you’re asking them for, and if your DTI is too high, you can face higher rates or even wind up declined for the credit you’re trying to get. 

High credit card balances also harm your credit utilization ratio – the sum of all your posted credit card balances divided by the sum of all your credit limits. This ratio is one of the most crucial components of your credit score, and should stay below 30% at most (below 10% is our recommendation). And of course, the biggest part of your credit score? An on-time payment history, which is much harder to maintain if you’re overextended and fall behind on your bills. 

On a related note, you may want to check out my post on financially healthy ways to boost your credit score. I have only ONE single sneaky “life hack” for credit scores, but it’s a good one: always pay your credit card off before the billing cycle closes. Most of us wait until we get our statement — but the number on your statement is the thing that the bureaus use to calculate your utilization ratio. Let’s say you have a $2,000 credit limit, and you charged $1,000 this month — the bureaus will see that as a 50% utilization, which is not great for your score. Try to pay off that balance in full before the billing cycle closes. To the bureaus, it then looks like you used 0% of your “revolving credit.” This factor counts for up to 30% of your score, so it can really make a difference.

They’re part of the plan, not the whole plan

Like most things, credit cards are better when you are living your money life with a plan. I think they are good products that offer tons of advantages for consumers (we haven’t even scratched the surface of rewards!), but only if you use them the right way. It’s difficult to use a credit card wisely when you don’t have a sense of your monthly spending and how much is too much. And you won’t reap the full benefits of cardholder protections if you aren’t regularly reviewing your transactions to make sure you spot anything that looks weird as soon as you can.  

Knowing monthly spending and reviewing your transactions are integral habits I help my clients build. It can feel daunting to figure out the monthly cost of being you, but between the technology I use and the supportive structure I provide, it’s easier than you think. If you’d like some support around developing better habits around your credit card, book an introductory session. We’re revamping our intro pricing in March, so if you’d like to grab one while it’s still free, book soon!

Photo credits: Header photo by Pixabay on; hacker photo by Tima Miroshnichenko on; frustrated guy photo by Andrea Piacquadio on

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