There are many situations where not having a credit
card is an inconvenience. Car rentals, hotel
reservations, and airline bookings all require a
credit card and if you can’t get one because of
limited or bad credit, then you’re in a bind. This is
where a prepaid credit card can be beneficial.
Prepaid credit cards are simply Visa, Mastercard, or
American Express branded cards that are loaded
with money and used as credit cards where credit
cards are accepted.
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How Does a Prepaid Card Work?
With a prepaid credit card, you deposit money onto
the card, sort of like a gift card. Then, as you use
your prepaid card, the amount of your purchases is
deducted from the balance reducing the amount you
have left to purchases. Let’s say, for example, you
deposit $300 onto your prepaid credit card. After
paying $150 for a car rental, you’d only have $150
left to spend. Once you’ve used your entire balance,
you have to reload more money onto your prepaid
credit card before you can use it again.
Managing a prepaid credit card is more like
managing a checking or savings account than
managing a credit card. You don’t have to worry
about interest, finance charges, or late payments.
What you have in your account is all you’re able to
spend. There’s no revolving balance or due dates to
think about.
See Also: Bad Credit? A Secured Credit Card Can
Help
How Much Does it Cost?
Prepaid credit cards come with a lot of fees. For
example, the Account Now Prepaid Mastercard, has
a activation fee of $9.95, a monthly transaction fee
as high as $9.95, up to $4.95 to reload money onto
the card, $1 fee for making PIN purchases, $1 fee
to check your balance at an ATM, $2 fee to talk to a
customer service representative, and a $2 fee to
withdraw money from an ATM (in addition to the
ATM’s fees). Each time you incur a fee, it comes
from your balance, giving you less money to spend.
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Who Might Use a Prepaid Credit Card?
You might sign up for a prepaid credit card if your
bank doesn’t carry Visa- or MasterCard-branded
debit cards and you don’t have a credit card, or if
you can't get a checking account because you have
a bad credit with ChexSystems. This will allow you
to spend money as if you had a credit or debit card,
though you really don’t have one.
Children and college students are also good
candidates for prepaid credit cards. Parents can
load money on the card for their young kids and
begin teaching them good money management
skills. For college students, parents can easily
reload money onto the card allowing the students to
easily pay for books, food, and other expenses.
Will It Help Rebuild Credit?
You can get a prepaid credit card regardless of your
credit history . But, a prepaid credit card won’t help
you establish or improve your credit. Using a
prepaid credit card says nothing about your
borrowing or repaying habits, so the card
companies don’t report to the credit bureaus. If you
have a prepaid credit card, it won’t appear on your
credit report or influence your credit score.
If you’re looking to rebuild your credit, a secured
credit card is a better option. It’s similar to a
prepaid credit card in that you have to make a
deposit to get the card. But, it’s actually a credit
card. The deposit acts as collateral in case you
don’t pay your credit card balance.
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