Single-purpose credit cards are those that have narrow limits on how consumers may employ them to make purchases. They differ from the general purpose credit cards -- such as Visa and MasterCard -- that consumers may use to make purchases at a wide variety of outlets and for many other purposes. Individuals with single-purpose cards may use them only at specified stores or for stipulated purposes.
The term "single purpose" can refer to a number of different purposes. For example, many single-purpose credit cards only facilitate purchases at a single store or chain of stores. The cards may be used only at those stores, but they may be used to buy anything in those stores. As in the case of general-purpose cards, owners of single-purpose credit cards receive monthly bills until they pay off their balances. They also often are charged interest on any unpaid bills.
Issuers of single-purpose credit cards include a wide range of businesses that sell products and services to consumers. In general, issuers offer the cards as a way to encourage consumers to spend money with them. The cards allow consumers to feel more capable of making purchases even when they do not have funds at the ready to pay for it. Single-purpose cards also give the retailers a way to earn interest rate fees on the products and services that they are selling. Finally, a big advantage of single-purpose credit cards for retailers is that it provides them with tremendous market research of their customers, allowing them to track individual customers' purchasing decisions.
Stored value single-purpose credit cards differ from traditional credit cards in the payment process. Whereas traditional cards allow users to make purchases with the card first and then to pay the debt on the card later, stored-value cards have a set limit attached to them and they are paid for in full before they are used. One prevalent stored-value single-purpose credit card is the telephone calling card, a type of prepaid card that allows a user to buy long-distance phone minutes.
An advantage of single-purpose credit cards for consumers is that they often come packaged with discounts from the issuer. For example, a retailer might provide a deal on a new large purchase in exchange for the purchase being made on the single-purpose credit card. Or the retailer might give the consumer a lengthy period to pay off the purchase without any interest charges. Also, making purchases with individual single-purpose cards helps consumers track their expenses, keeping certain types of purchases separate and helping with efforts to build and maintain a budget.