Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

Which of the following best describes a credit card?

1. A card linked to a savings account

2. A card that draws funds from a checking account

3. A card allowing purchases on borrowed money

4. A prepaid card with a set limit

The correct answer is: A card allowing purchases on borrowed money

A credit card is best described as a card allowing purchases on borrowed money. This means that when a consumer uses a credit card, they are essentially borrowing funds from the card issuer to complete a transaction. The card issuer provides a credit limit, which is the maximum amount that can be borrowed. The borrower is then required to pay back the borrowed amount, typically with interest, if the balance is not paid in full by the payment due date. This definition accurately reflects how credit cards operate in the financial system, as they are designed to facilitate credit transactions rather than directly accessing the user's personal funds, like a debit card would. The nature of credit makes it distinct from other financial products, as it enables consumers to make purchases even when they do not have sufficient cash or funds immediately available in their accounts.