Payment Card Basics | MasterCard® United States

To spruce up your financial future, it is also important to understand basic information about payment cards - how they work, how you can get one, and how they can help you and your family. Payment cards, like credit and debit cards, are a safe and convenient alternative to cash and checks. They can give greater flexibility and control over your expenses. Learning to effectively manage these financial tools can help you to reach your financial goals, build your credit history and avoid credit problems.

Credit Cards Secured Cards Unsecured Cards Debit Cards

Credit Cards

A credit card is a form of payment card that offers many benefits such as an increase in buying power, payment flexibility and worldwide access to cash. A credit card provides you with a line of credit which is the maximum amount you may borrow. When you make purchases, your available line of credit decreases. When you make monthly payments or pay the outstanding balance in full, the amount of the line of credit available to you is either partially or fully restored. For example, if your initial line of credit is $500 and you buy $50 worth of groceries with your card, you will have $450 left over that may be used. Once you've paid the $50 of the outstanding balance, your line of credit will go back to $500.

When you receive your monthly bill, you can pay it off in full, pay just the minimum amount required or any amount in between. However, it's important to be aware that just paying the minimum amount will typically cover only your interest charges and will not reduce your outstanding balance. In other words, you will have to pay more than the minimum required whenever possible. After setting up your budget, you will have a much better idea of how much you can spend on purchases with your credit card each month. Now, let's look at the different types of credit cards available to you.

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Secured Cards

Secured cards are a great "first step" for those with little or no credit history. This type of credit card requires you to make a deposit for the purposes of establishing a line of credit. Your line of credit, also known as a credit limit, typically will be equal to the amount deposited. This type of credit card exposes the issuer to a lower risk and offers individuals who don't qualify for a regular, unsecured card, a chance to get a card backed by a deposit. And as with any credit card or financial product, it is very important to fully understand the obligations and charges set forth in the card application or contract, since they tend to vary from company to company.

One of the benefits of a secured card is that it allows you to establish a credit history as you would with a regular credit card. Only you and the issuing company will know that it's a secured card.

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Unsecured Cards

Regular or unsecured credit cards offer the cardholder a predetermined line of credit based on the user's credit history. Unlike secured cards, no deposit is required. There are two types of unsecured cards:

Typical Credit Cards - The credit card for your daily buying needs. Most are accepted worldwide and allow you to carry out safe, risk-free transactions.
Premium Credit Cards - Commonly known as gold or platinum credit cards, premium credit cards can offer a broader range of benefits than typical credit cards, such as a higher line of credit or extended warranties on purchases.

By constantly practicing responsible use of credit, holders of typical and secured cards may obtain a platinum credit card.

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Debit Cards

Debit and ATM cards are payment cards that offer a safe, convenient alternative to cash and checks. Typically, a bank issues a debit or ATM card when you open a checking account. In most cases, you don't need to have credit history in order to get a debit or ATM card. However, it's important to know that you cannot withdraw more funds from your account than what you have deposited.

ATM Cards - An ATM card allows you to withdraw cash straight from your checking and savings accounts at ATMs. Access to the account is restricted by a Personal Identification Number (PIN) provided to the accountholder. This PIN keeps transactions secure and must not be given out. You must keep a record of all transactions in order to avoid overdrafts on your account.
Debit Cards - A debit card is similar to an ATM card in that it allows you to access your checking and savings accounts through an ATM. In addition, debit cards normally contain the symbol of a major payment card, such as the MasterCard brand, and may be used for making purchases at establishments displaying that symbol. Unlike credit cards, the purchase amount is deducted from your checking account. So there are no interest charges. You can also use a debit card to withdraw funds from your bank account. Some banks might charge a fee for using the debit card. For security purposes, transactions are authorized with either the personal identification number (PIN) or a signature, just as with credit card transactions.

In addition, many credit card brands like MasterCard offer a Zero Liability Policy. This means that, in most cases, the cardholder is not liable for the unauthorized use of his/her card. However, you need to contact your credit company immediately if your card has been lost or stolen, or if you suspect that unauthorized transactions have been applied to your account. Your company's customer service phone number can be found on your card as well as on your monthly account statement.

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