Which type of card allows the holder to make purchases based on a prearranged line of credit?

Which type of card allows the holder to make purchases based on a prearranged line of credit?

• A. Debit card
• B. Prepaid card
• C. Credit card
• D. Stored-value card

Answer: (C)

A credit card allows the holder to make purchases based on a prearranged line of credit. This means that the card issuer provides a specific credit limit, up to which the cardholder can borrow money for purchases. When a purchase is made with a credit card, the amount is charged to the credit line, and the cardholder is responsible for repaying that amount, usually within a billing cycle. Many credit cards also offer additional features such as rewards programs, interest-free periods for payments, and the ability to build credit history, making them a common choice for consumers. In contrast, a debit card draws directly from the cardholder's bank account, pulling funds available at the time of the transaction, which does not involve borrowing. A prepaid card is loaded with a specific amount of funds before use, and once those funds are depleted, no further transactions can be made until more funds are added. A stored-value card operates similarly to prepaid cards, offering a limited amount of funds that cannot exceed what has been preloaded. Each of these alternatives does not provide the same lending structure or ability to carry a balance that a credit card does.

A credit card allows the holder to make purchases based on a prearranged line of credit. This means that the card issuer provides a specific credit limit, up to which the cardholder can borrow money for purchases. When a purchase is made with a credit card, the amount is charged to the credit line, and the cardholder is responsible for repaying that amount, usually within a billing cycle. Many credit cards also offer additional features such as rewards programs, interest-free periods for payments, and the ability to build credit history, making them a common choice for consumers.

In contrast, a debit card draws directly from the cardholder's bank account, pulling funds available at the time of the transaction, which does not involve borrowing. A prepaid card is loaded with a specific amount of funds before use, and once those funds are depleted, no further transactions can be made until more funds are added. A stored-value card operates similarly to prepaid cards, offering a limited amount of funds that cannot exceed what has been preloaded. Each of these alternatives does not provide the same lending structure or ability to carry a balance that a credit card does.