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It’s everyone’s nightmare scenario: A person steals your credit card and uses it to make expensive purchases for which you then become liable. Can this really happen? What are the policies that guide your credit and debit card agreements, and how can you reduce the risk that you’ll become a victim of fraud? The answers may depend both on the types of transactions and on the types of cards you have. The following tips provide some useful information to help you navigate this potential morass.

Your liability

If your credit card is used without your permission, you may be responsible for up to $50 in charges, according to the Federal Trade Commission (FTC). If your card is lost or stolen and you report the loss before your card is used in a fraudulent transaction, you can’t be held responsible for any unauthorized charges. Some card issuers have decided not to hold their customers liable for any fraudulent charges regardless of when they notify the card company.

When reporting a card loss or fraudulent transaction, contact the card company via phone; many provide toll-free numbers that are answered around the clock. In addition, the FTC advises following up via a letter or email. This should include your account number, the date you noticed the card was missing (if applicable), and the date you initially reported the card loss or fraudulent transaction.

What about debit cards?

The liability if your debit card is used without your permission will vary depending on whether the card was lost or stolen or is still in your possession, the type of transaction, and when you reported the loss or unauthorized transaction.

According to the FTC, if you report a missing debit card before any unauthorized transactions are made, you aren’t responsible for the unauthorized transactions. If you report a card loss within two business days after you learn of the loss, your maximum liability for unauthorized transactions is $50.

If you report the card loss after that time but within 60 calendar days of the date your statement showing an unauthorized transaction was mailed, liability can jump to $500. Finally, if you report the card loss more than 60 calendar days after your statement showing unauthorized transactions was mailed, you could be liable for all the funds taken from your account.

If you notice an unauthorized debit card transaction on your statement, but your card is in your possession, you have 60 calendar days after the statement showing the unauthorized transaction is mailed to report it and still avoid liability.

While the lower protections required on debit cards may make you wonder if you’re safer using a credit card, some debit card companies offer protections that go above what the law requires. For instance, some don’t hold customers responsible for unauthorized charges. Others don’t hold customers responsible for transactions completed with a signature, but do hold them responsible, according to the time frames outlined above, when a personal identification number (PIN) is used.

Cut the risk

Taking a few simple steps can help cut the risk that your card will be used without your permission or knowledge — or at least that you’ll be liable for any charges unauthorized users make: First, carry only the cards you need and destroy old cards, slashing through the account number, before discarding them. Don’t provide your card number over the phone or online unless you’ve initiated the contact.

In addition, make sure to memorize your PIN. And don’t choose a PIN that could be easily guessed. If you have online access, take a few moments to scan transactions every time you log on. If you don’t have online access, be sure to review your monthly statements. If you notice a transaction that isn’t yours, report it to your credit card issuer or bank right away.

Keep a list

Finally, keep a list of important numbers and relevant data and store it separately from the cards themselves. Having this information handy will make it easier to report a missing card or suspicious transaction quickly. Your accountant can help answer any further questions you may have.