Debit and credit cards in the USA

I know it’s a long time now, maybe an year or two, but I still remember clearly that after one of the many card data breaches in the US – maybe Target’s – I ended up exchanging comments with some Americans on the difference between debit cards and credit cards. Turns out that for people who never had to face that choice before, it’s not obvious why would anybody pay with a debit card at a store such as Target, rather than a credit one. So it might be worth writing it here, given that I talked about credit cards before. But be warned that this is pretty much limited to the United States, so if you’re not interested, feel free to skip.

So first of all, what’s the rokus about credit versus debit? The main difference between the two, on an user point of view, is the protection: in the case of fraudulent transactions on a credit card, most issuers will revert the charge and block the card without costing money to the consumer — who’s going to eat that loss depends on a number of different factors including, as of recently, whether the bank issued an EMV card, and whether the point-of-sale used the chip to execute the transaction. On the other hand, fraudulent charges on a debit card are usually a loss for the cardholder.

So generally speaking, if you have a choice, you should pay with a credit card. Which is generally not what vendors want, as they would prefer you pay with a debit card (it costs them less in fees). As much as I feel for the vendors – I had my own company, remember? – the inherent risk of breaches and the amount of PoS malware makes it sadly a consumer protection choice.

But the relative ease to get debit and credit cards is also a factor. Getting a debit card is trivial: you walk into a branch, ask them to open a new account, give them enough information about yourself, and they will mail you a debit card. They won’t look into your financial data – including your credit score – because they are not giving you credit, they are just giving you a mean to access the funds you deposited at their bank.

This, among other things, means that you can get a card number in the US without being a resident: if you’re a non-resident in the US, but you have a permanent address of some kind, such as an office or a friend’s, you can just enter a branch and open an account with a US bank. They’ll need your documents (passport, and another credit/debit card with your name, or another non-photo ID), and a proof of address in your country of residence, but otherwise it’s usually a quite pleasant experience.

To provide more information on the topic: since you’re not a resident and you’re not working illegally in the US, you’re not receiving a fixed paycheck on your US account, which means that most fee-waiving programs that count on you receiving a given direct credit per month won’t apply to you. Instead you should look into fee-waiving by the deposited amount — Bank of the West has a minimum deposit of $1000, which is the lowest I have seen, but when I asked them they tried to send me from Sunnyvale to San Francisco to open an account; the Chase next door was happy to have me as a client, even though their minimum deposit is $1500.

If you plan on transferring money often between the two accounts, you probably want to use a service like Wise, that converts currencies and transfer funds between USD, EUR, GBP and other currencies at a much cheaper rate than most banks, and definitely much cheaper than the banks that I have.

But things get complicated if you want a credit card, even more so if you want a rewards credit card, such as Amazon’s, or any airline or hotel chain — which generally wouldn’t be very useful to foreigners as most countries with the except of Ireland have some card that you can get, American Express being the worst case.

To get the most common credit cards in the US you need to be in the credit system somehow; you probably want to have some credit history and a rating too. If you’re resident in the US, they will find you up through the Social Security Number (SSN), but it’s more complicated for non-residents (unless they were at some point residents of course).

In either case, the simplest form of credit card you can request is a secured credit card — which is essentially a glorified debit card: you pay the bank an amount, and then then make that amount available to you as a credit line. The main difference between this and a debit card is that it does have the protections of a credit card. It also allows you to build up credit score, which is why it’s usually the choice of card for immigrants and young people who don’t have a history at all. They generally don’t come with any kind of rewards system.

Immigrants here include techies, by the way. Even when working for big companies in the Silicon Valley, the lack of a credit history means you have to build it up from scratch. I know some of my American acquaintances were surprised that it’s not as easy as showing your employment information to get credit.

Not all banks provide secured credit cards though. In particular when I asked Chase just the other day, they told me to try with the nearby US Bank or Wells Fargo – both walking distance – and I seem to recall that Bank of America does it as well. The idea is that you’ll use a secured card for at least an year to build up positive history, and then get a proper, better credit card after that. And that’s why you need a SSN to correlate them.

What I said up to now would imply that you have no option to get a credit card if you, like me, are just a visitor who happens to be in the States every few months. That is not strictly true: the requirement for the SSN is a requirement for an identifier that can be reported across multiple banks and with the IRS; there is another identifier you can use for that, and it’s the ITIN. This non-resident identification number has some requirements attached, and it’s not exactly trivial to get — I have unfortunately no experience with getting one to retell yet. It is usually assigned by filing a US tax return, which is not something you want (or need) to do if you’re a foreigner. Especially because it usually requires a good reason, such as having an ebook published and having Amazon withhold 30% of the royalties for US taxes, when a treaty exists between the US and your country of residence.

I do indeed plan to look into how to declare my royalties properly next year to Ireland, and file a US tax return to get the (cents) back — if nothing else to request an ITIN, and with it a rewards credit card. After all, a lot of the money I spend ends up being spent in the US, so why not?

Well, to be honest there are a bunch of reasons why not. You risk getting audited by either or both of your country of residence and the USA — and for the USA there is no way to escape the IRS, or they wouldn’t consider only two things certain. You have paperwork to file, again for both countries, which might be unwieldy or complex (I have yet to look at the paperwork to file with Irish authorities, they are usually straightforward). And you end up on the currency market; right now between EUR and USD it’s pretty stable and doable, but if you don’t keep an eye out it’s easy to screw it up and ending up wasting money just on the exchange. So it’s still an investment in time.

Myself, I still think it’s likely it’s going to be a good idea to try to get an ITIN and a proper credit card, since I come to the States every few months between conferences and work travel. But I won’t make any suggestions to anybody else. Your money, your choice.