As a seller on the Internet, I was often amazed at how many people chose to pay via money order. When you think about it, a money order is the worst possible method for the buyer. It costs the buyer money to purchase and mail. If the seller is dishonest, it is very difficult to recover the payment. Isn't everyone aware that using a credit card is the safest way to shop on the Net?

Then I spoke to my sources in the banking and credit card industry (the same folks who provided me with the detailed information on payment services and credit cards posted on my site) and discovered that the story is not that simple. Just as every cloud has a silver lining, every silver lining has its cloud. A payment method that is fast and easy also carries its drawbacks.

The obvious drawback is the rising cost of merchandise. Whether you see it or not, you are paying more because of credit card use. There was a time when customers paid the cost directly in a higher percentage. Then credit card issuers forced the merchants to hide these costs. First there were "discounts" for cash. Then these discounts went away and everyone paid extra, whether they used a credit card or not. In addition to the fees, there is the cost of fraud. Credit card fraud is rising exponentially, and vendors are taking these costs into account.

But since you are paying the same amount whether you use a credit card or money order, why not use your credit card? After all, don't you have charge back rights and limited liability? Yes, a credit card protects you against a dishonest seller and you won't have to pay the credit card issuer more than $50 if your card is used without authorization. But there is another cost against which you are not protected and there is no limit to the possible cost. This is the growing problem of identity theft.

A criminal gets hold of your credit card information and some additional information about you, such as your social security number. The folks who rant on the boards against giving your SS # to Paypal or C2it would be shocked to learn how easy it is for someone else to obtain. There are web sites on the Internet that will sell this information on anybody for under $10.

Armed with this information, a criminal applies for a credit card using your name, your social security number and a postal box or apartment rented in your name. He then orders merchandise using that card. Since the bills go to the address he gave, you don't become aware of the problem until months have passed and the bills have mounted to thousands of dollars. Then you start getting the calls from collection agencies and attorneys.

Of course you can probably prove that you didn't do it and you probably won't even have to pay $50. But now your credit rating has been destroyed. To stop this criminal from further harm, you will probably have all your credit cards cancelled. So far it hasn't cost you much more than a lot of time, phone calls and aggravation. Then you find your dream house and apply for a mortgage. Now you have to battle with the bank to convince them that your bad credit rating is inaccurate. Fortunately, if a bank turns you down for a loan, you can demand to know the reason and possibly challenge it. But if you are looking for a job and every good prospect dissolves, you may never find out that you failed the credit check.

I can understand why some folks insist on using money orders.

Does this mean that you should stop using credit cards? Of course not. The odds of becoming a victim of identity theft are small, particularly if you exercise some caution in how you use your credit card. More on that next time.