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Clearing Up the Considerable Confusionin Plastic Terminology:Prepaid Debit Cards,Debit Cards, Secured Credit Cards, Prepaid Credit Cards, Unsecured Credit Cards, Charge Cards,Gift Cards

By John Ulzheimer

Ok, I get it…the world of financial services can be complicated and confusing. It’s hard to calculate APRs, and it’s hard to forecast interest paid on long term credit card debt. And, according to a recent survey by VantageScore Solutions and The Consumer Federation of America, consumers don’t know very much about credit scores. But nothing, and I mean nothing, has caused more confusion lately than the misuse of terminology as it pertains to plastic. The goal of this article is to provide a clear definition and proper terminology as it pertains to commonly used “plastic.”  Here goes…

Prepaid Debit Card – A prepaid debit card is a card that has value loaded straight to the card. You can load your paycheck, or pay a service like Western Union to add funds to the card. Prepaid Debit Cards are not credit products. You buy them, like a gift card. You don’t apply for them, like a credit card. They usually are loaded with fees and offer no credit building benefit, regardless of what you may hear or read. A prepaid debit card is not a….

Debit Card – A debit card is basically a plastic check. There are no funds loaded onto a debit card. The funds are in your account with a bank or credit union. When you swipe your debit card the funds are transferred from your bank to the merchant. Debit cards, like prepaid debit cards, are not credit products and do not offer credit building benefits. A debit card is not a…

Secured Credit Card – A secured credit card is actually a real credit card. But, the issuer requires that you make a deposit with their bank or credit union and then issues the card with a credit limit of an equal amount. Because it is a credit product you do have to apply for them, and they are commonly reported to the credit reporting agencies. A secured credit card actually IS a…

Prepaid Credit Card – A prepaid credit card is the same thing as a secured credit card. It just seems like some folks would rather call them “prepaid” than “secured” despite the entire secured card industry referring to them as “secured credit cards.”  And yes, calling them “prepaid credit cards” is causing people to believe that you’re actually referring to prepaid debit cards, which they are not.  A prepaid credit card is not an…

Unsecured Credit Card – An unsecured credit card is what most of us carry in our wallets, and we almost always refer to them simply as, “credit cards.” We had to apply for it, and the issuer had to approve us for it. And, we have a credit limit, a due date, an interest rate, and we get a statement once a month. We have late fees, over limit fees, and other fees…if we mismanage the card. Most of us have plenty of these credit cards on our credit reports. An unsecured credit card is not a…

Charge Card – A charge card is a “pay in full” product, like the American Express Green Card. These are sometimes referred to as “Open” accounts, as that’s the standard credit industry “Account Type” designation for a pay in full account. And no, “open” in this case does not mean the opposite of “closed.” If you charge $500 on a charge card then you must pay $500 by the due date. You can’t roll part of the balance to the next month like you can with a credit card. A charge card is not a…

Gift Card – A gift card is just that…a card you buy for someone as a gift. You probably got some for your birthday, or for Christmas as they’re the most common gift given each year. A gift card is a piece of plastic that has some dollar amount loaded onto it, like a prepaid debit card. But, there are no fees other than the fee to initially purchase the card (unless you never use it). Gift cards can either be “general use”, like the American Express Gift Card (able to be used wherever Amex is accepted) or they can be “chain specific”, like a Macy’s Gift Card (able to used only at Macy’s)

By the way, the reason some people are calling secured cards “Prepaid Credit Cards” is because of SEO (Search Engine Optimization). The folks that are marketing secured credit cards want the “rankings” and traffic for the term “prepaid” as it pertains the plastic. We can partially thank keyword ranking desires for this intentional misuse of “plastic” terminology.

This article originally appeared on Credit Card Insider.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, Ulzheimer is the only recognized credit expert who actually comes from the credit industry. Follow John Ulzheimer on Twitter: http://twitter.com/johnulzheimer.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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