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The 4 Types of Cards Most People Carry

[Saturday, March 26th, 2016]

Most of us have wallets packed with plastic—but what exactly is it that we’re carrying around, anyway? It’s not just credit cards, although the average household has more than three credit card accounts. There are store loyalty cards, debit cards, prepaid cards, rewards cards, prescription cards, and more. And each serves a different, sometimes very specific, purpose.

Let’s take a closer look at each of the four types of cards most people carry. Do you have one of them in your wallet?

Credit cards are what most people think of when they think of the plastic cards in their wallets. A credit card allows you to make purchases with hypothetical money—money you are going to have to pay later. When you make a purchase with a credit card, the credit card issuer (usually a bank or credit union) covers the amount and bills you later. Usually they let you pay a minimum amount instead of the total amount you’ve charged that month. For example, you might have bought $500 worth of stuff during the last statement period, but you might only have to pay a minimum payment of $50. If you don’t pay the entire amount due, the card issuer will charge you interest according to an annual percentage rate (APR) and it will take you longer to pay off the total.

Debit cards look the same as credit cards, but they are quite different. When you use a credit card to buy something, the money automatically comes out of your linked bank account. It’s like writing a check that’s deposited instantly, or taking money from an ATM and paying cash. You don’t have to pay anything back later, because you’ve already paid. Debit card activity is not reported to credit bureaus and has no impact on your credit score. You also cannot get into debt using a debit card. If the money isn’t in your account, the purchase won’t go through.

Prepaid cards also look a lot like credit cards, but they too are different. They are more like debit cards, in that you are paying for purchases with your own money and won’t be billed later. With a prepaid card, instead of linking to a bank account, you load money onto the card and use it until it’s gone. You can reload the card and keep using it, as long as it has funds available. The advantage of a prepaid card is that you can’t go into debt with it, you can have all the convenience of a credit card, and you can put a little bit at a time on the card so you don’t inadvertently drain your bank account.

Store loyalty cards aren’t payment cards at all, but most of us carry a lot of them, and we take them out at the same time we take out our payment cards. These cards give us point rewards or discounts at the register. They’re a nice way to get some extra value from each purchase—but don’t forget that using a credit card with rewards built in can boost those rewards even more.

See also

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