CREDIT & DEBIT CARDS (ALSO CALLED ‘PLASTIC MONEY’) Flashcards
What is a credit card?
A line of credit extended by a bank
Allows you to borrow money up to a limit
You’ll need to pay interest on any outstanding balance
Can be used for online and in-store purchases
What is a debit card?
Linked directly to your checking account
Deducts money immediately from your balance when you make a purchase
Doesn’t usually offer rewards or help build credit
What is an overdraft?
A feature on some checking accounts that allows you to spend more than you have in your account, up to a limit
Incurs fees
Best used as an emergency safety net
When is it best to use a credit card?
Larger purchases you want to pay off over time
When you want to take advantage of rewards programs
To start building your credit history
When is it best to use a debit card?
Everyday spending
If you want to avoid debt and stay within your budget
When you don’t need the benefits of rewards or credit building
What is the main difference between a credit card and a debit card?
A credit card lets you borrow money for purchases with interest charged on the balance.
A debit card is linked to your bank account and uses your existing funds.
Can you withdraw cash from an ATM using a credit card?
Yes, but it’s treated as a cash advance and often comes with additional fees and higher interest rates than regular purchases.
What is an advantage of using a credit card?
Potential rewards like points or cashback
Can help build credit history if used responsibly
May offer purchase protection or extended warranties
What is a potential disadvantage of using a credit card?
Can lead to debt if overspending occurs
High interest rates on unpaid balances
Can negatively impact your credit score if not managed well
What is a hybrid/duo card?
A single card with two chips, functioning as both a credit and debit card.
Provides the convenience of carrying just one card.
Example: IndusInd Bank Hybrid Card
Describe a prepaid card.
A type of debit card not directly linked to a bank account.
Can be purchased even without a traditional bank account.
Often used for specific purposes (e.g., travel, online shopping).
Example: IRCTC UBI Prepaid Card
What are the advantages of a hybrid card?
Convenience: Eliminates the need to carry multiple cards.
Flexibility: Offers both credit and debit payment options.
What are some use cases for a prepaid card?
Travel: Convenient for budgeting and currency exchange.
Online shopping: Provides security for online transactions.
Gifting: A flexible gift option.
Budgeting: Helps control spending.
What is tokenization?
Tokenization is a security process where sensitive credit or debit card data (like your card number) is replaced with a randomly generated string of numbers called a “token”.
Why is tokenization important?
Tokenization protects your card information during online transactions. Even if a merchant’s website is hacked, the stolen tokens are useless to the hackers because they don’t reveal your actual card details.