Prepaid Credit Cards
A prepaid credit card can help individuals with a poor credit history, or no credit history at all. Since a prepaid card is linked to a bank account, interest is not charged and using the card does not increase the debt of the cardholder. In some instances, using a prepaid credit card may even build or improve the credit history of the cardholder.
Understanding Prepaid Credit Cards
A prepaid credit card is tied to a bank account with a specified amount of
money deposited in it. The credit cardholder may only charge up to the
amount that is in account associated with the credit card. When the account
balance runs out, the card must be reloaded before the cardholder can make
additional charges.
No Credit History or Bad Credit History
For individuals without any credit history, such as teens or students, a
prepaid credit card may be a good way to teach them how to handle money.
For an individual with a poor credit history, a prepaid card can keep them
from getting into worse financial trouble. A prepaid card does not add to
debt, since the cardholder cannot exceed the balance in the account
associated with the card. In addition, prior credit history makes no
difference in getting a prepaid credit card.
Restore Your Credit With A Prepaid Credit Card
Some prepaid credit cards can help you restore your credit history. If you
are interesting in using the prepaid credit card to improve your credit
score, make sure that the issuing company reports credit card usage to the
credit bureaus.
Initial Cost and Fees
Although you do not have to worry about interest charges with a prepaid
credit card, you should consider fees. Most prepaid cards have a set up
fee. Make sure that it is low. You should also look for hidden fees, such
as: monthly fees, customer service fees, or transaction fees. Select the
prepaid card with the lowest fees.
Prepaid Credit Card Reloading Cost
Another fee to be aware with choosing a prepaid card is the cost of
reloading the card. Most card issuers charge a fee each time that you
reload the card. Typically the fee is low, only about a $1.00. However, if
you are going to reload the card often, the reloading fee can add up.
Monthly Charges
Although a prepaid credit card can usually be used in the same way that
you would use a regular credit card, one exception is recurring monthly
charges. Often, you cannot use a prepaid credit card to sign up for a
service, such as a subscription, that has recurring monthly charges. This
is because the subscription company cannot be sure that you will have
enough balance left in your account to pay for the service each month.
The Bottom Line
A prepaid credit card can give the cardholder most of the benefits of a
credit card without the hassle of meeting credit card qualification. When
selecting a card, you should be aware of the initial cost and fees
associated with it as well as the cost of reloading the card. If the card
issuer reports the credit card usage, a prepaid credit card could help the
cardholder build or restore their credit history.
