A traditional credit card is a small plastic card that is linked to a line of credit. The line of credit is issued to a debtor by a creditor. The lender sets a certain limit on the amount of money that he or she can borrow off of the card. Whenever the cardholder uses this device, the amount of the purchase is deducted from the total credit line set by the lender.
The customer must make monthly payments to return the funds on the card. When the customer pays off such a balance, the credit is returned to the original amount. This is what is known as a revolving credit account. Most traditional credit cards work on a revolving credit system. The “money” that is on the card is actually an amount that the lender is loaning the cardholder.
Prepaid Cards vs. Traditional Credit Cards
Over the past few years, prepaid credit cards have been becoming increasingly popular. They are similar to credit cards in that the cardholder can use them in the same places. The user can use a prepaid card to pay for things like fuel, clothing, and electronics. He or she can also use a prepaid card to pay for utility bills. Nowadays the prepaid cards can even be used to rent vehicles and reserve plane and train tickets.
The main difference between a prepaid credit cards and traditional credit cards is that there is no credit account linked the the prepaid card. The cardholder funds the card by going to a participating retailer and passing the clerk cash to put on the card. The user may also add funds online from a source such as a bank account or money pack. After the customer loads the card, he or she can make purchases as usual. The user will only have the amount available that he or she funded the card with. Once those funds have been spent, the cardholder can no longer use the card until he or she adds more funds.