Debit cards are cards that allow you to only spend what you have. As a result, every time you use your debit card to make a purchase, the amount of the purchase is automatically withdrawn from a linked account. There are 2 types of debit cards:
Check Cards (i.e. cards linked to your checking account): This is the most common type of a debit card and most of the time it is simply referred to as a ‘Debit Card’.
As the name suggests, swiping a check card (or debit card) is exactly the same as writing a check. Specifically, debit cards are associated with the bank where you have your checking account. When you buy something with a debit card, the purchase price is automatically deducted from your checking account. You then receive your monthly purchase statement from your own bank, but you do not need to make any payments because the money has already been withdrawn from your checking account.
Debit cards / check cards do not allow you to build a credit history. It is very important to keep track of your debit card spending, so that you do not spend more money than you have in your checking account and end up getting penalized with overdraft fees.
Pre-paid Cards (i.e. cards linked to a prepaid account): Pre-paid (or re-loadable) cards are identical to debit cards with the only difference being that instead of having a checking account where your purchases are withdrawn from, you have a pre-paid account. Most people add money to, or “load”, their pre-paid accounts with cash and in person by going to certain grocery stores, drugstores, check cashing stores, and even some gas stations.
Pre-paid/re-loadable cards do not help you build credit history; they do not affect your credit at all. When you run out of money in that account, the pre-paid card may no longer be used until you load more money. Pre-paid cards offer the convenience of a debit card, but without the need to open a bank account. However, they usually involve a “heavy” fee structure with monthly fees, per-transaction fees, fees for adding funds to your account, and the like.
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