Which type of card allows the cardholder to purchase goods and services on credit?

The correct answer is a credit card, as it provides the cardholder with the ability to borrow funds from a financial institution, up to a predetermined limit, to purchase goods and services. When a transaction is made using a credit card, the cardholder is essentially taking out a short-term loan, which they will need to repay, typically on a monthly basis. This repayment can be either in full or over time, with interest accruing on any balance that is not paid off by the due date.

Credit cards often come with additional benefits, such as rewards programs, product protection, and the potential to help the cardholder build their credit history, which is essential for obtaining loans or financing in the future.

In contrast, a debit card is linked directly to the cardholder’s checking or savings account, meaning it draws funds directly from the available balance rather than allowing the user to borrow money. Gift cards are preloaded with a specific amount and cannot be reloaded or used to create a negative balance. Prepaid cards are also funded in advance by the cardholder and work similarly to debit cards, requiring the user to only spend the amount that they have preloaded onto the card.