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Comparing Credit, Charge, Secured Credit, Debit, or Prepaid Cards

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Many payment cards may look alike, and they all let you use a plastic card to pay for things online or in a store. But credit, charge, secured credit, debit, and prepaid cards work in different ways and offer different advantages and pitfalls. Decide what kind of card will work best for you. Then, look at offers from several banks, credit unions, or financial services companies. Use this checklist to compare the fees and terms to find your best deal. Then, be sure the card you want matches what the bank, credit union, or financial services company is offering.
 

Credit card: When you use a credit card, you’re borrowing money to buy something now. Later, you pay back the money, usually with interest. You may be able to avoid paying interest if you pay your bill in full by the payment due date. For cash advances and balance transfers, most credit cards charge interest right away. Each credit card’s terms and conditions tell you how interest is charged for that card.

As you compare credit cards, look for the Annual Percentage Rate (APR). For credit cards, that’s the interest rate you’ll pay on unpaid balances. The higher the APR, the more you’ll pay. Know that you can shop around, and that each card issuer may have more than one card with more than one rate available. Most credit cards have a set limit on how much you can borrow every month. Most also charge you an annual fee, and give you certain protections under the law. For instance, if someone uses your card without your permission, your losses are limited to $50.

Charge card. When you buy things with a charge card, you agree to pay off the full balance every month — or when you get your statement. A charge card often has no set limit on how much you can borrow. But you’ll probably pay a high annual fee to use the card — and a fee if your payment is late. Financial companies — and sometimes banks — issue charge cards. You also have certain protections under the law, such as if someone uses your card without your permission, your losses are limited to $50.

Secured credit card. To use a secured credit card, you deposit money with a bank or other credit card lender. That money then secures your repayment, so the card issuer knows it will get paid. The money you deposit also determines your credit line — which is how much you can spend. Your credit line is a percentage of the deposit — typically, 50 to 100 percent. A secured credit card can help you build your credit history. You may have to pay an annual fee to use one, but not all cards require it.

Debit card. Typically, your bank or credit union offers a debit card when you open a checking account. A debit card lets you pay with money that is already in your checking account. You’re not borrowing money and you don’t pay interest. Some checking accounts let you arrange for overdraft protection on debit card purchases, which lets you withdraw more money than you have. But overdraft protection often means you’ll pay an overdraft fee and interest on the money you overdrew. With a debit card, you usually don’t have to pay an annual fee. If someone uses your card without your permission, notify the bank or credit union right away to limit your losses. If you don’t tell them on time, you could lose all the money in your account and more, even if a scammer or thief took it.

Prepaid card. When you buy a card and load money on it to spend, you’re getting a prepaid card. Usually, you can use the card to spend up to the amount you loaded, unless you add more money to the card. Most prepaid cards (sometimes called prepaid debit or stored-value cards) do not help you build a credit history. You might have to pay fees to activate, use, add money, or to get cash at an ATM. You get prepaid cards from stores and online, including from banks and credit unions. Register your prepaid card to get certain protections under the law, including limiting your losses if someone uses your card without your permission. With prepaid cards, you don’t need a bank account, good credit, or to pay interest.

Some prepaid cards give you a credit option that you can set up with the card issuer. This option would let you spend more than the amount you loaded.

The Consumer Financial Protection Bureau has more information about credit cards and prepaid cards.

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