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

Credit Cards

How do credit cards work? When you use a credit card, you’re borrowing money to buy something now. Later, you pay back the money, usually with interest.

Find information about how much interest you’ll pay by looking at the card’s agreement, which is posted on the card issuer’s website. You also usually get information about the card’s costs and terms when you apply for the card or open an account. 

The statement you get each month will tell you things like how much interest you paid that month and your credit limit, which is the most you’re allowed to borrow on the card.

If you pay your bills on time, credit cards can help you build a good credit history. Businesses look at your credit history to estimate how likely you are to pay your bills in the future. It can affect things like whether you get a job, housing, insurance, and more. It can also affect how much you’ll have to pay to borrow money.

What fees do I have to pay to use a credit card? Many credit cards charge an annual fee. They may also charge fees for setting up an account and monthly maintenance, as well as for things like cash advances, balance transfers, and going over your credit limit. And if you don’t make your payment on time, you may be charged a late fee.

Credit cards let you carry a balance from month to month but can charge you interest on your unpaid balance. How much you’ll pay is based on your annual percentage rate (APR), or interest rate. The higher the APR, the more interest you’ll pay. The APR also affects how much your minimum monthly payment will be. If you don’t make your payments on time, your APR could increase by a lot.

On most cards, you can avoid paying interest if you pay your whole bill — for everything you bought that month — by the due date.

Shop around to compare credit cards (the Consumer Financial Protection Bureau’s Explore Credit Cards for Your Situation tool may help). Look for the best APR available to limit your costs. 

What legal protections do credit cards offer? Credit cards must give you certain protections under the law. For example, if someone uses your card without your permission before you report it lost or stolen, the maximum you can be responsible for is $50.

Credit cards are also safer than other payment cards because you have dispute rights that cover many problems. This is especially important when you shop online. It can also help with in-person shopping when, for example, there’s an error with your purchase. So if a company charges you twice, charges the wrong price, bills you for something you never got, or if you get a wrong or damaged item, you can dispute the charge with your credit card company and possibly get your money back.

Charge Cards

How do charge cards work? Financial companies — like banks — issue charge cards. With charge cards, you don’t pay interest and don’t have a pre-set spending limit. When you buy things with a charge card, you have to pay off the full balance when you get your statement, which is usually every month.

What fees do I have to pay to use a charge card? Some charge cards make you pay a high annual fee. They’ll also charge you a fee if your payment is late.

What legal protections do charge cards offer? Charge cards offer the same liability and dispute protections as credit cards under the law. For example, if someone uses your card without your permission before you report it lost or stolen, the maximum you can be responsible for is $50. And, like with credit cards, you can dispute errors on charge cards and might get a refund. 

Secured Credit Cards

How do secured credit cards work? A secured credit card requires you to deposit money with a bank or credit card issuer. Usually, you have to deposit a percentage of your credit limit — maybe even up to 100%. That way, the credit card company knows it’ll still get paid if you miss a payment. You usually get this deposit back when you pay off your balance and close your account.

Secured credit cards might help you build or improve your credit history. Many secured credit card issuers report how you use your card to the credit reporting agencies. If they do — and if you make payments on time, stay within your credit limit, and meet any other requirements for the card — it may help you for the future. For example, if you don’t have a credit history or are trying to improve your credit history, a secured credit card might help you to eventually be able to get an unsecured card.

What fees do I have to pay to use a secured credit card? Secured credit cards generally (but not always) have higher annual percentage rates and higher annual fees than unsecured cards. And you might have to pay other fees to use the card, like activation or monthly maintenance fees. The more money you end up paying toward these fees means the less you’ll have for your available credit.

What legal protections do secured credit cards offer? Secured credit cards have the same legal protections as other credit cards. For example, they limit your losses for unauthorized use of your card to $50 and let you dispute errors for many problems.

Debit Cards

How do debit cards work? Typically, banks or credit unions offer debit cards when you open a checking account. A debit card lets you pay with money that’s already in your checking account. You’re usually not borrowing money, and you don’t pay interest.

Debit cards don’t help you build credit history. With credit cards, you pay to borrow money — and how you handle or pay back the money gets reported to credit bureaus. But with debit cards, you usually just draw from the money you have in your checking account.

You’ll get information about the debit card’s terms, including any fees, when you get the card, open the account, or before your first account transaction.

What fees do I have to pay to use a debit card? Debit cards don’t require you to pay an annual fee. But since your debit card is tied to your checking account, you may pay other fees, like for checking account maintenance. Or you may have to pay overdraft fees if you spend more money than you have in your account.

Your bank may offer debit cards with overdraft protection on purchases. That lets you spend more money than you have in your checking account, but you’ll pay an overdraft fee and interest on any money you overdrew. You’d also have to agree in advance (or opt in) to have overdraft protection services.

If you don’t opt into overdraft protection and try to make a one-time payment with your debit card for more than you have in your checking account, your debit card will be declined but you won’t be charged an overdraft fee. But overdrafts caused by automatic bill payments or other preauthorized transactions are treated differently, and you could still be charged a fee.

What legal protections do debit cards offer? Debit cards must give you certain protections under the law. For example, depending on how soon you report the problem, debit cards limit the maximum amount you might be responsible for if the card is lost or stolen. If you don’t report a problem quickly, you might not be able to get any money back.

What you can dispute with debit cards is also more limited than with credit cards. For allowed disputes like unauthorized use of your account, or incorrect charges to your account, you may be able to get some money back through the dispute process. 

Prepaid Cards

How do prepaid cards work? When you buy a card and load money on it to spend, you’re usually getting a prepaid card — sometimes also called a prepaid debit or stored-value card. You generally use the card to spend up to the amount you’ve loaded. Some are reloadable, which means you can add more money to the card.

Prepaid cards are often available to buy in stores and online, including from banks and credit unions. For prepaid cards, you don’t need a bank account or good credit, and you won’t pay interest.

There are different types of prepaid cards, and you usually load money on them when you buy them. If they’re reloadable, you can usually add more money after you register the card.

Most prepaid cards have a logo on them — for example, a MasterCard or Visa logo. You’re able to use the card anywhere that accepts that logo. If the prepaid card doesn’t have a network logo, you can only use it at limited locations.

Most prepaid cards don’t get reported to credit bureaus so don’t help you build a credit history.

Know that gift cards are different from prepaid cards. They’re generally marketed as gift cards and usually aren’t reloadable. Gift cards don’t have the same protections as other cards. Learn more about gift cards.

What fees do I have to pay to use a prepaid card? You might have to pay fees to activate the card, use it (including monthly or per-use fees), add money to it, or get cash at an ATM. There may also be other service fees, or fees for inactivity if you don’t use the card regularly. A prepaid card issuer has to provide information to you about the fees and other terms before you buy the card. You’ll also find them posted on the issuer’s website.

Some prepaid cards let you spend more than the amount of money you loaded on the card. This means you’re borrowing money, like you would with a credit card or overdraft. In that case, you might have to pay interest and other credit-related fees.

What legal protections do prepaid cards offer? Prepaid cards can have different protections than many debit cards and credit cards. Register your prepaid card to get important protections under the law, including limiting your losses if someone uses your card without your permission. You’ll usually find instructions for how to register your card on the card’s packaging.

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