PayPal or Credit Card—Which is Safer?

Find out whether PayPal or a credit card is the best way to stay safe from fraud and prevent identity theft when making online purchases.

Laura Adams, MBA
5-minute read
Episode #266

PayPal or Credit Card?

A reader named Sarah F. asks:

I make a lot of purchases online—but I worry about identity theft. Would using PayPal, instead of a credit card, limit the number of people who have access to my confidential information and keep me safer?

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Over 100 million people use PayPal to buy products and services online—but how does it compare to using a credit card?

If you’ve never used PayPal, it’s a service that allows you to pay online—using money in your PayPal account, your bank account, or with a credit card—anywhere a merchant displays a PayPal checkout button.

PayPal offers some nice benefits, but using it is no guarantee that you won’t become a victim of fraud. Because it’s so popular, thieves like hacking into PayPal accounts just as much as they like stealing credit card numbers.

However, it’s easy to beat the cyber criminals at their own game and stay safe if you follow these 7 tips:

Tip #1: Treat PayPal Like a Bank Account

PayPal is just like any other financial account when it comes to security—you must review the account activity at least once a month so you can nip any fraudulent charges in the bud. PayPal notifies you when your monthly statement is ready, which makes it easy to remember to log in and take a look.

Many times online criminals won’t drain an account by taking one big withdrawal. Instead, they usually begin by stealing small amounts, like $5 every few days. Thieves know that most people are not monitoring their accounts carefully. If you don’t refute the charges, a criminal will start stealing larger amounts. 

Tip #2: Don’t Link PayPal to Your Bank Account

Though paying with a bank account or debit card on PayPal is very convenient—especially if you don’t use a credit card—it’s not as safe. If a thief hacks your PayPal account, money could be taken directly out of your bank account. Your potential liability for fraudulent charges is different for debit and credit cards.  

You can refute fraudulent bank charges—but the problem is that you have to catch them quickly in order to get financial protection. On the other hand, if you link PayPal to a credit card and it gets compromised, your maximum liability can never exceed $50.

Learn more in How to Stay Safe from Debit and Credit Card Fraud.

Tip #3: Use a Strong PayPal Password

For each financial account that you access online, be sure to create a unique username and password. If you use the same password in multiple places and a cyber thief hacks one of your accounts, you’re making it easy for them to get into all your accounts!

Each password should have no less than 8 characters and be comprised of uppercase and lowercase letters, numbers, and symbols (like an exclamation point or dollar sign, if allowed). Using a password manager like Roboform makes it easy to create and remember long, complex passwords.

Check out Tech Talker’s episode, How to Create and Manage Strong Passwords.

Tip #4: Use a PayPal Security Key

If you want even more protection, you can use a PayPal security key. You can purchase a physical key for $29.95 that’s the size of a credit card and displays random security codes that change every 30 seconds. You have to enter the current key code to log in to your PayPal account.

PayPal can also send security codes by text message on your mobile phone. This option is free, except for the standard text messaging rates that apply. Once you enable this mobile option, you text PayPal to for a security code and they text it back to you.

Tip #5: Never Access PayPal in Public

You should never access any website that contains your confidential information from a public computer or an open Wi-Fi connection. There could be malicious software on a public computer that records your keystrokes. Even if you use your own laptop in an internet café or library, hackers can track what you’re doing on an unsecured internet connection.

A thief just needs your PayPal password to access your account, reset your password, and take over. So visit your online financial accounts from a secure internet connection only.

Tip #6: Update Your Computer Security

Keep your computer updated with the latest anti-virus software and security patches to your operating system and internet browser. Remember that if your computer has spyware and you use a financial site like PayPal, a cyber criminal will know your username and password and have easy access to your account without you knowing it.

Tip #7: Don’t Click on Links in Emails from PayPal

Cyber criminals commonly send “phishing” emails that look like an official message from PayPal, but are fakes. When you click a link in the email, you’re taken to a dummy website that looks just like the real thing—complete with the PayPal logo. If you enter your confidential information on a criminal’s site, they’ve got what they need to steal from you.

If you receive an email from any of your financial accounts, don’t risk getting tricked. Instead, manually type in the website address and log in to your account to look for communication from the company.

Is It Safer to Use PayPal or a Credit Card?

Now, let’s get back to Sarah’s question about whether PayPal keeps you safer. The real answer is “it depends” because PayPal has advantages and disadvantages.

Using PayPal does limit the number of merchants who have direct access to your credit or debit card number, while giving you the same card rewards. PayPal says they never give your financial information to sellers or merchants, and that they protect you from fraud if it’s reported within 60 days.

However, PayPal is the world’s most popular payment system, which makes it a big target for cyber crime. That could hurt you if you’re not savvy enough to spot it or don’t use a security key.

Both PayPal and a credit card offer the same level of protection from fraud—if you follow the 7 tips covered here and put up a tight wall of security for all your online purchases.

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More Articles and Resources You Might Like:

The Best High-Yield Checking Accounts for 2012

6 Simple Tools to Protect Your Privacy and Prevent Identity Theft – includes audio interview with an identity theft expert

Photo: Online Shopping from Shutterstock

About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.